Raising tobacco prices crucial for public health and economic growth
In Bangladesh, 3.78 million adults frequently consume bidi, cigarettes, jorda-gul, and other smokeless tobacco products. As a consequence, tobacco-related illnesses claim the lives of about 161,000 people annually. This places a heavy financial strain on the country - an estimated Tk30,560 crore is spent on medical costs and lost productivity each year. These ongoing health risks and financial losses hinder the country's progress and prosperity. Consequently, a crucial approach to address this dual threat is to raise taxes and prices on tobacco products, aiming to reduce their consumption and mitigate their destructive effects on public health and economic growth.
The forthcoming fiscal year's (2024-25) budget will be announced soon. Globally, in the revenue collection process, taxation on tobacco products serves not only as a means of generating revenue but also as a crucial tool in safeguarding public health. Tobacco is recognised as a significant health hazard, and Bangladesh has implemented laws aimed at reducing tobacco consumption to protect public well-being. Among various strategies, increasing prices emerges as a widely accepted and effective method to discourage tobacco use among consumers.
Through targeted taxation, the cost of tobacco products naturally increases, by this means, reducing individuals' purchasing power and their inclination to use tobacco. As a result, the risk of dying from tobacco-related non-communicable diseases is also reduced. Meanwhile, although the use of tobacco will decrease, the revenue will increase by imposing a high rate on tobacco products and will contribute to the economic development of the country.
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This approach has also been found to be beneficial in the top tobacco-consuming countries. But compared to other countries, the price of tobacco products in Bangladesh is within reach. Which is making the use of tobacco easy among economically backward people and the young generation of the country. Therefore, increasing the price of tobacco and imposing taxes will prevent these economically vulnerable users from buying tobacco products. As a result, tobacco control endeavors will be easier for us.
The prices of bidis, cigarettes and other tobacco products in Bangladesh have not kept pace with necessary increases. Specifically, the prices of low-end cigarettes have failed to align with inflation and the growth in per-capita income. Between 2016 and 2022, average monthly household income rose by 103 percent, per capita income by 93%, and inflation by nearly 9%. This substantial growth in income and inflation has rendered tobacco products more affordable.
According to the World Health Organization (WHO), the affordability of cigarettes has increased by 15% compared to previous years, suggesting significant price increases for these low-end cigarettes. Moreover, the government is experiencing substantial revenue loss from this sector due to the stagnant pricing of low-end cigarettes.
Cigarettes have been sold in the market at prices higher than those announced in the budget for the fiscal year 2022-23 for each pack of 10 sticks of different grades. For example, a 10-pack of low-grade (cheapest) cigarettes, which was supposed to be priced at Tk40, is being retailed at Tk50. However, cigarette companies have been paying taxes to the Board of Revenue based on the declared retail price, i.e., Tk 40. This inconsistency is observed across all grades of cigarettes. Consequently, in the fiscal year 2022-23, cigarette companies escaped taxes amounting to Tk5,500 crores. This tax evasion continues, resulting in even greater revenue losses for the government in the current fiscal year, as the same tax system remains in place.
Moreover, tobacco companies have disseminated the misconception that raising the price of low-end cigarettes would force low-income users to reduce their daily grocery purchases to sustain their cigarette consumption. However, a 2021 survey conducted by non-govt. organization 'Unnayan Shamannay' revealed that this scenario is highly improbable. Additionally, the argument that cigarette users would switch to bidis in response to price hikes lacks practical evidence. Historically, there has been no correlation between increases in the price of low or mid-range cigarettes and an outpouring in bidi sales. Data from the past five years indicate a consistent decline in bidi sales alongside a simultaneous rise in the consumption of low-end cigarettes. Ultimately, implementing higher taxes on tobacco products has the potential to generate significant revenue for the government.
A recent study suggests that by reforming the current tax system to include specific taxes and raising the minimum price of all tobacco brands, an additional revenue of Tk10,000 crore could be generated in the fiscal year 2024-25. This represents a 28% increase compared to current revenue collections. In the long term, such measures could potentially prevent the premature deaths of approximately 538,000 adults and 541,000 young individuals. Moreover, revenue generated from tobacco taxes could be directed towards the development of the health sector and anti-tobacco awareness campaigns. This comprehensive approach aims to reduce tobacco use, thereby promoting both public health and long-term economic prosperity.
Moreover, high prices and taxes will discourage people from using tobacco products, especially young and poor users whose purchasing power is affected by price increases. By implementing increased tobacco taxes, the prevalence of tobacco use can be reduced, subsequently lowering the incidence of tobacco-related non-communicable diseases and associated mortality rates. A targeted rise in tobacco prices and taxes is a necessary and urgent measure to mitigate the risk of non-communicable diseases in Bangladesh. Given that the National Board of Revenue establishes cigarette prices across all categories in the budget, it is crucial to prioritize raising prices for low-end (affordable) cigarettes in the upcoming 2024-25 fiscal year budget. Additionally, enhancing taxes and prices on bidis and smokeless tobacco products is equally essential.
Increasing taxes on tobacco products to discourage the use of tobacco is a cost-effective strategy essential for the comprehensive development of the nation. Policymakers should prioritize implementing higher tax rates on tobacco items to protect both the economy and public health. This initiative is in line with Prime Minister Sheikh Hasina's vision of creating a tobacco-free Bangladesh by 2040. These measures not only enhance revenue generation but also reduce smoking prevalence, ultimately advancing the country on all fronts.
Prof Dr Md Habibe Millat is the former parliamentarian and founding shairman of Shastho Shurokkha Foundation
