Current cigarette tax is not discouraging consumption: World Bank

The existing taxation system in Bangladesh has neither decreased cigarette consumption nor increased revenue generation, said a report of the World Bank.

The number of smokers has been increasing as existing laws to prevent smoking cigarettes are not implemented properly, the report read.

The World Bank published the report titled "The Distributional Impacts of Cigarette Taxation in Bangladesh" recently.

Cigarette consumers are opting for low-priced brands due to the increased tax rates. As a result, health risks and the economic burden of low-income people have been increasing, the report mentioned.

When tax rates rise, cigarette manufacturers lower the standard of their brands' different slabs and thus technically evade the increased tax rate.

As a result, the government is being deprived of revenue, said the report.

Small impacts of increase in prices

An increase in the price of cigarettes in Bangladesh has a small impact on consumption.

For example, if the prices of cigarettes increase by 1% in Bangladesh, consumption decreases by 0.27%. The rate of decrease in bidi consumption is 0.22% against a 1% increase in prices, said the report citing different researches.

Meanwhile, if prices of tobacco products increase by 1%, consumption reduces by 0.50-0.64% in China.

The demand for cigarettes and bidi decreases by 1.03% and 0.94% respectively in India when the prices of the products increase by 1%, according to the World Bank.

In Nepal, the demand for tobacco reduces by 0.88% if prices of tobacco products increase by 1%.

In the last decade, cigarette consumption, particularly consumption of cheaper brands, has expanded significantly in Bangladesh, said the report.

Since 2011, the volume of consumption of the low-priced segment has risen by an average of 26%, causing the market share to increase.

The market share of the low-priced segment accounts for nearly 77% of the total volume whereas it was 51% in the 2010–11 fiscal year. Yet, it represents only 40% of the total revenue from cigarettes, according to the report.

The price of a cigarette packet, containing 20 cigarettes, of the most popular brand, is $3.4 on average in Bangladesh – despite a 77% tax rate. It is the highest tax rate among the countries of South Asia, the report said.

In India, the price of a cigarette packet is $9.2 on average with a 43% tax rate while it is $5.7 in Nepal with only a 26% tax rate. The price of a cigarette packet is $19.6 with 62% tax in Sri Lanka.

Only in Pakistan, the price of the most popular brand is lower than that of Bangladesh, the report said. With a 66% tax rate, one packet of cigarettes costs $2.2 there.

The poor spend more on tobacco consumption

The report said poor households bear the burden of the increased prices because of their higher share of spending on tobacco.

The tobacco consumption rate is 69% in 30% of families of the ultra-poor in Bangladesh while it is 55% in well-off families.

Tobacco consumption accounts for 3.7% of total household expenditures in 50% of the ultra-poor families in the country.

On the other hand, the expenditure on cigarettes is only 2% of total household expenses in the richest families.

Bangladesh is one of the largest consumers of tobacco in the world where four in 10 adults – 46 million people – use some sort of tobacco. About 39.8% of men are using tobacco while the rate is 0.7% among women.

The prevalence of smokeless tobacco use is similar among men and women, which is about 30%.

The rate of smokers among men in Bangladesh is the second highest in South Asia, followed by 41.9% in Pakistan, revealed the report.

The rate is 20.4% in India, 24.4% in Sri Lanka, 31.6% in Myanmar, and 37.1% in Nepal.

About 65% of households have consumed tobacco of some sort in Bangladesh.

However, the rate of tobacco consumption had decreased over the last decade, according to the report.

The rate of consuming tobacco, by families, was 82% in 2005, 71% in 2010, and 68% in 2016.

However, the rate of consuming cigarettes by households increased from 23% in 2005 to 30% in 2016.

Losses caused by tobacco consumption

The high rates of tobacco consumption in Bangladesh impose an increased health and economic burden on the country.

The report said 1.2 million tobacco-related illnesses and nearly 57,000 deaths attributable to smoking are reported each year.

Quoting another study of the World Health Organisation, the report added a quarter of all deaths among men aged between 25 and 69 in Bangladesh are attributable to smoking.

The overall economic cost of tobacco use has been estimated at Tk11,000 crore ($1.85 billion) or over 3% of gross domestic product in 2013.

Government's initiatives to curb tobacco use

The government of Bangladesh was among the first to sign in 2003 and ratify in 2004 the World Health Organisation's Framework Convention on Tobacco Control.

The country introduced the Smoking and Tobacco Usage Act in 2005 to restrict smoking in certain locations. Warning labels on cigarette packets and limits on advertising tobacco products were also made mandatory as part of the law.

Despite the government's actions to curb tobacco consumption, it rose between 2009 and 2012.

According to the World Bank, a lack of proper enforcement of non-tax measures like a ban on advertising and ensuring smoke-free public places are responsible for the increase in smokers.

"Although tobacco taxation has been recognised as one of the most effective strategies to reduce smoking, the tobacco tax structure has helped make cigarette prices in Bangladesh among the lowest in the region and in the world despite some of the highest tax rates," said the report.

What experts say

Ahsan H Mansur, executive director at the Policy Research Institute, told The Business Standard the current tax structure is not helpful with increasing the price of cigarettes to a level sufficient to reduce consumption.

"As a cigarette is not a necessary commodity and is harmful for both health and the economy, its price should be out of poor people's reach," he said.

The economist recommended a specific excise tax on tobacco products at a higher rate and strengthening the enforcement of laws and regulations by the government to prevent smoking.

ABM Zubair, executive director of the Knowledge for Progress (Progga), an anti-tobacco movement, said the highest tax rate and lowest price of tobacco remain a paradox in Bangladesh due to lower price base.

He said the government had fixed the price of cigarettes at the lowest range and imposed a high rate of ad valorem tax which is not effective in increasing the price.

A specific excise tax on a packet of cigarettes could increase the price, said Zubair.

"An increase in the price of cigarettes influences the consumer to switch to a lower-priced brand or lower-priced product like bidis," he said.

He added that it is a violation of Article 6 of the Framework Convention on Tobacco Control by the World Health Organisation; which seeks to reduce tobacco consumption by increasing prices through higher tax.

Zubair also said cigarette producers have a great deal of influence on the people involved at the taxation policy level, and that is why they are getting extra facilities.

He recommended increasing the base price of cigarettes and merging all slabs to prevent consumers from switching to lower-priced brands from higher-priced ones.

He also recommended a high excise tax on cigarettes by replacing ad valorem tax.

Professor Dr Mullah Obaidullah Baki, former director of the National Cancer Research Institute and Hospital, told The Business Standard smoking is one of the major causes of cancer.

In addition, tobacco can cause a number of complex diseases, he said, adding that taxation should not be the only tool to discourage smoking.

"Initiatives to raise awareness against smoking need to be strengthened further. Apart from that, strict implementation of the existing laws in this regard is needed."