Govt eyes Tk5,000cr more revenue from cigarette by fixing retail price gap

The government plans to set a maximum retail price for a pack of cigarettes to earn more revenue, plugging the gap between what retailers charge from customers and what is printed on the packet, according to a senior finance ministry official.

Now, the retail price is printed on the packet, but customers have to pay at least Tk10 to Tk20 higher. This means the government loses revenue as the taxes are calculated on the basis of the rate printed on the packet.

For instance, a ten-stick packet of premium brand cigarettes (such as Benson & Hedges and Marlboro) has a retail price tag of Tk142, which means each stick should cost Tk14.2. However, buyers are currently being charged Tk16 per stick, which stands at Tk160 for a packet, resulting in a potential revenue loss of Tk18 per packet of 10 sticks only.

Similarly, in the case of higher-segment cigarettes (Gold Leaf or likes), each stick is sold at Tk12, whereas the retail price is set at Tk11.10.

The National Board of Revenue (NBR) has estimated that if taxes were collected based on the retail sales price, the government could have earned an additional Tk3,500 crore in revenue from the tobacco sector in the last nine months to March of the current fiscal year. For a full year, this amount could reach approximately Tk5,000 crore.

Officials from the Ministry of Finance have stated their intention to set the maximum retail price in round numbers for a packet so that a single stick is also sold at a round figure. They believe this move will not only protect consumers from extra prices but also boost government revenues.

To prevent revenue losses, the government intends to set maximum retail prices for all segments of cigarettes. These proposals were discussed in a recent meeting chaired by Finance Minister AHM Mustafa Kamal and will be presented at a meeting with Prime Minister Sheikh Hasina for approval today (14 May) before placing the budget on 1 June.

Former commissioner of Large Tax Payers Unit (LTU-VAT) Wahida Rahman Chowdhury wrote to NBR in August last year and held a meeting with the Directorate of National Consumer Rights Protection highlighting the revenue loss in cigarettes and seeking ways to plug the hole.  

According to the minutes of the meeting, apart from revenue loss, the gap between cigarette's selling and SRO (statutory regulatory order) prices also causes inflationary pressure on the customers making them pay higher than the authorised price.  

The meeting also requests the Directorate of National Consumer Rights Protection to take action against selling cigarettes at higher prices.

Currently, premium, high, and mid-segment cigarettes are subject to a 65% supplementary duty, while low-segment cigarettes face a 57% supplementary duty, in addition to a 15% VAT. Overall tax incidence on premium, high and middle segments is 80%, while low-end cigarettes face a 72% levy.

Talking with The Business Standard ABM Zubair, executive director of anti-tobacco campaigner PROGGA, said they want the revenue authorities to slap an equal rate of supplementary duty on all segments of cigarettes for the sake of public health.

Low-end cigarettes command about 75% market share as they are more available to a wider section of consumers because of their lower prices. An equal rate of tax for all segments would discourage smoking, save public health and earn more revenue for the government, he argued.

Retail price or MRP doesn't work in a competitive market, said Zubair.