3% turnover tax on tobacco products sales likely

The turnover tax on the sale of various types of tobacco and tobacco products including cigarettes, bidi, and jorda is likely to go up from the existing 1% to 3% as the government aims to boost revenue collection from this sector in the next fiscal year.

There is pressure from the International Monetary Fund (IMF) to increase the tax-to-GDP (revenue contribution to GDP) ratio, as a condition for the $4.7 billion loan programme.

According to the National Board of Revenue (NBR) sources, if the new initiative comes into force, tobacco companies or sellers will have to pay turnover tax at this rate even if they incur losses. 

At present, more than 65% of the tobacco market in the country is occupied by British American Tobacco, Bangladesh and the rest of the market share belongs to Japan Tobacco International Bangladesh, United Dhaka Tobacco Company Limited and others. 

According to British American Tobacco's financial statement, its sales or turnover in 2022 was more than Tk36,000 crore.

Experts in the sector said through this initiative, more tax can be collected from those companies which show little profit or losses despite having a huge turnover.

"However, companies with high turnover but very low profits or losses will be badly affected by the new initiative. But those who show an actual profit will not be affected that much," Snehasish Barua, a tax expert and partner of Snehasish Mahmud and Company Limited, a chartered accountant firm, told The Business Standard.

Currently, there is a 2.5% surcharge in addition to the 45% corporate tax and 1% health development surcharge on tobacco companies. Beyond this, there is a 1% turnover tax. A turnover tax of 1% is payable if companies or tobacco producers do not pay corporate tax (if not income).

Apart from increasing the turnover tax, the prices of cigarettes in all four-tier are likely to be increased. Along with price hikes, necessary amendments may be made to the existing order of the National Board of Revenue (NBR) to levy tax on the sale of cigarettes at minimum retail prices.

On the other hand, the import duty on cigarette paper may increase, as well as tariffs on liquid nicotine and e-cigarettes.

The NBR aims to collect a large amount of revenue from cigarettes as a means of easy tax collection in the next budget.

Experts, however, believe that apart from increasing the prices of cigarettes, other steps should be taken to control the use of tobacco products. Local anti-tobacco groups have also been demanding an increase in tobacco taxes.

Former NBR chairman Muhammad Abdul Majid told The Business Standard, "Increasing the prices of cigarettes will generate revenue for the government. But to reduce tobacco use, non-tariff barriers need to be effectively created in addition to this. Otherwise, the revenue of the government will increase but the consumption of tobacco products will not decrease."

Prices to go up

At present, cigarettes in the market are divided into four tiers on which the government fixes prices and a supplementary duty is levied as ad valorem tax.

The price of low-tier cigarettes (10 sticks) may be increased by 12.5% to Tk45 from the existing Tk40 and the supplementary duty on this segment, which currently holds about 73% of the entire market share, may also be increased by 1% to 58%.

The existing price of mid-tier cigarettes (a pack of 10 sticks) may be increased from Tk65 to Tk67, a pack of upper-tier to Tk113 from Tk111 and a pack of premium-tier to Tk150 from Tk142. Supplementary duties existing at these three levels may remain unchanged.

About Tk29,600 crore of value-added tax (VAT) has been collected from tobacco products in the 2021 fiscal year. NBR officials expect it to cross Tlk32,000 crore in the current fiscal. 

As a result of fixing the new prices and bringing changes in the supplementary duty structure, more than Tk38,000 crore can be collected from this sector in the next financial y 

Besides, the supplementary duty on liquid nicotine, transdermal nicotine or similar products which have recently become popular, may increase by 150% from 100% and the duty on electronic cigarettes and similar devices and parts may increase to 212%.