How far do taxes counter tobacco use in Bangladesh?

Every year, the increase in retail prices of tobacco, usually indicates the national budget is right around the corner. Even though smokers grumble at the skyrocketing prices, it is just about the only tax imposition that faces the least resistance, since the logic behind imposing it is to protect public health.  

However, how many smokers actually quit tobacco with every price hike remains a matter of research. Nonetheless, the government certainly benefits from the increased revenue.

Recently, the Bangladesh Economic Association (BEA) proposed a 70% tax on all types of cigarettes and tobacco in the next budget 2024-25. The proposal was submitted to the National Board of Revenue (NBR) during a pre-budget discussion. According to BEA, smoking would be reduced by about 60%, and Tk1,700 crore in revenue would be generated if the proposal is accepted. 

NBR determines the prices of cigarettes by brands categorised into four tiers: premium, high, medium and low. The current budget 2023-24 sets prices of low-tier cigarettes at Tk45 per pack and a 58% supplementary duty, Tk67 per pack for medium-tier, Tk113 per pack for high and Tk150 per pack for premium cigarettes. The supplementary duty on the upper three tiers remains unchanged at 65%. 

Following the budget session last year, prices of each cigarette pack increased by Tk 2-8, depending on the quality. Since the 1992-93 budget, the government has been taxing tobacco products, including cigarettes. Now the question is, how far have all the taxes been able to counter tobacco use in Bangladesh? 

Independent economists have measured negligible impacts, while public health experts criticise the measures for being focused mainly on revenue collection rather than anti-tobacco health campaigns. 

In 2023, the Foundation for A Smoke-free World projected that around 40 million adults aged 15 years and older in Bangladesh used tobacco products. Among the users, 18.0% smoke tobacco while 20.6% use smokeless tobacco. The anti-tobacco campaign also estimated that among young people aged between 13 and 15, 6.9% use tobacco in any form. 

According to the United Nations' Food and Agricultural Organization (FAO), Bangladesh produced approximately 92.3 thousand tonnes of unmanufactured tobacco in 2022, an increase of 67% compared to the production of 55.3 thousand tonnes in 2010. 

Advancement through Research and Knowledge (ARK) Foundation published the Cigarette Demand Analysis: Bangladesh 2021 and found evidence of reductions in the prevalence of adult tobacco use when tobacco taxes and prices increase. "..a 10% increase in the price of each cigarette stick would reduce the overall cigarette demand by 7.1%," ARK analysis said. 

However, the effectiveness of a tax increase depends on how much it translates to a price increase and, more importantly, how much the price increase reduces consumer demand. ARK compared the price elasticity estimations across the wealth groups and found that low-income groups are more than twice as responsive to changed prices than their rich counterparts. 

"Therefore, increasing the price of cigarettes could help reduce the number of these (low-income) smokers, which has substantial public health implications," ARK analysis said.

However, the analysis highlighted a concern that the effectiveness of cigarette taxation is mainly subject to the efficiency of the tax structure design, as well as proper implementation. 

The tobacco tax structure in Bangladesh is complex and four-tiered 

Cigarette prices are comparatively low here when an increasing per capita income is actually encouraging the product's market. Additionally, the complex tax structure poses challenges for proper tax administration.

ARK Foundation executive director Professor Rumana Huque, also a faculty member of the economics department at Dhaka University, said, "The tax tier design is flawed and it encourages existing smokers to continue with the habit, even by switching to cheaper brands. The cigarette producers are well informed about the trend. So they do brand repositioning to evade taxes." 

Sometimes, manufacturers shut down a brand of a medium-tiered cigarette and release a similar product under a different brand name in a low tier, by just changing the price. Due to this change, they have to pay lower taxes. 

Another study by ARK Foundation found evidence from cigarette sales by British American Tobacco in the 2019-20 fiscal when the company introduced a new brand Royals in the low-tier and minimised the supply of its popular medium-tier brand Star. As a result, the company's market share of low-tier brands grew to 69% from 36.8% in the 2018-19 fiscal. 

"Merging four tiers into two, along with strict market monitoring is strongly recommended. It's all about public health," Rumana said. 

Institute for Health Metrics and Evaluation (IHME)—a research centre under the University of Washington School of Medicine—-estimated in 2019 that tobacco was the fourth highest risk factor driving the most deaths and disability combined in Bangladesh. That particular year witnessed more than 129,000 tobacco-related deaths or 24% of all deaths in Bangladesh. 

Of the tobacco-related deaths, 105,000 or 82% were attributed to tobacco use and 25,000 or 19% were to secondhand smoke exposure, according to IHME.

Campaign for Tobacco-free Kids in 2021 estimated about 1.5 million adults suffer from tobacco-attributable illnesses and more than 61,000 children (below age 15) suffer from diseases caused by exposure to second-hand smoke.

Tobacco users, compared to those who never use it, have a 57% higher risk of developing a tobacco-related disease such as ischemic heart disease, stroke, chronic obstructive pulmonary disease, or lung cancer, and a 19% higher risk of tobacco-related cancer, the Campaign said.

Dr Lenin Chowdhury, renowned preventive medicine specialist and chairman of Health and Hope Hospital, said, "Tobacco taxation in Bangladesh hardly considers public health. Otherwise, a big portion of the revenue [from tobacco tax] would have been allocated to treat patients with tobacco-related diseases." 

Additionally, "A proper estimation of national and individual [patient of tobacco-related disease] losses is a prerequisite. Tobacco taxes should be designed according to the estimation. Finally, the revenue should be spent on tobacco prevention," said Dr Lenin.