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Tobacco Price and Taxation Policies in Bangladesh May 2014

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Category
Report
Subcategory
,
Report Type
Policy Report
Publication Year
2014

Bangladesh needs to simplify its current tobacco tax structure to strengthen the use of tobacco taxes to reduce tobacco use while increasing tax revenue

The ITC Bangladesh Report presents extensive findings over three waves of the ITC Bangladesh Survey, a nationally representative survey of tobacco users, which was conducted from 2009-2012. The ITC Bangladesh Survey is part of the ITC Project’s research across 22 countries, inhabited by over 50% of the world’s population and over 70% of the world’s tobacco users. In each country, the ITC survey measures a wide range of key measures of impact of tobacco control policies of the World Health Organization’s Framework Convention on Tobacco Control (FCTC). The use of common measures across all surveys allows for strong cross-country comparisons of FCTC impact across countries.

The World Health Organization has recognized that raising taxes on tobacco products is the most effective measure for reducing consumption and prevalence of tobacco products. And tobacco taxation is the theme of this year’s WHO World No Tobacco Day.

The ITC Bangladesh Report evaluates the effectiveness of current price and tax policies for two types of smoked tobacco products: cigarettes and bidis, (inexpensive hand-rolled cigarettes that are popular among the poor in Bangladesh and India). The Report also includes an overview of the undebated importance of price and tax policies in tobacco control and an overview of the guidelines and recommendations for Article 6 of the FCTC: Price and tax measures to reduce the demand for tobacco.

The ITC Bangladesh Report offers the following six recommendations based on the findings:

1) Simplifying the tax structure by implementing specific excise taxes

2) Reducing the price gap between bidis and the cheapest cigarettes by implementing specific excise taxes

3) Harmonizing tax rates across tobacco product categories (including smokeless tobacco)

4) Monitoring and adjusting tax rates to correspond with inflation and income levels 

5) Banning single cigarette and bidis sales 

6) Earmarking tobacco tax revenues for comprehensive public health and tobacco control programs.

The ITC report describes the complex tax structure in Bangladesh, which leads to multiple opportunities for manipulation by the industry to reduce the impact of tax increases on demand. These include having differential tax rates based on retail price slabs across cigarette brands and tobacco products. In presenting findings on the impact of the complex tax structure, the ITC Report makes a case for product and brand tax harmonization using more uniform specific excise tax, in accordance with the WHO’s recommendation of enhanced uniform specific excise taxes to increase price and reduce demand. These recommendations are particularly important in Bangladesh because Bangladesh currently has the third lowest retail price for a package of the most sold brand of cigarettes in the South-East Asia region, higher only than Nepal and Pakistan[1].

Specifically, the ITC report finds that increases in tariff values for supplementary duty (SD) on non-filtered and filtered bidis have not changed the real price of bidis during the three ITC Bangladesh Survey waves (2009-2012). Further, the significant price gaps between brands of cigarettes in different price categories creates greater incentives for smokers to switch to cheaper brands in response to price and tax increases. These gaps also create greater incentives for manufacturers to engage in tax avoidance and evasion (e.g., by positioning brands in the gaps between price slabs).

The report suggests the need for levying specific excise tax on both cigarettes and bidis and increasing the specific tax every year. The ITC report also presents findings showing that there is considerable public support for tax increases on both cigarette smokers and bidi smokers themselves: indeed, 65% of current cigarette smokers would support higher taxes on cigarettes, and 50% of current bidi smokers would support higher taxes on bidis. Although these findings may seem contrary to expectations, they actually point to the fact that smokers themselves recognize the harms of these addictive products, want to quit, and recognize that higher prices would increase the chances that they would quit smoking.

The report also presents findings from economic modelling of the ITC Bangladesh data, which estimates that a 10% increase in the price of cigarettes would cause a 4.9% decrease in cigarette consumption. However, the economic modelling conducted by the ITC Bangladesh research team also indicates that a 10% increase in household income would lead to a 2.3% growth in cigarette consumption. These two competing economic forces must be considered in the development of taxation policies in Bangladesh, as in all countries. Because of the rapid growth of income in Bangladesh, any efforts to use tax policies to decrease tobacco consumption and prevalence will be weakened to a considerable extent by increases in the affordability of cigarettes due to income growth unless mechanisms are put in place to adjust tax policies relative to income changes, such as explicitly building adjustments for income growth.

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