Effective taxation is necessary to restrain cigarette consumption

Smoking is one of the leading causes of preventable death worldwide. In Bangladesh, every year, about 161,000 people die due to the use of cigarettes and other tobacco products. It affects people regardless of age, especially lower-income people, as one-fifth of their income is spent on buying tobacco products. Apart from this, a large sum of money is spent on the treatment of diseases caused by tobacco use. The total loss we incur from cigarettes is many times greater than the revenue from cigarettes. According to statistics, in the fiscal year 2017-18, BDT 22,810 crore was received from taxation of selling tobacco products, but in the same year, the healthcare cost due to tobacco-related illness was BDT 30,560 crore.

The tendency of teenagers to use cigarettes is also a matter of particular concern. If their health is damaged, it will threaten the future of the entire nation. Lower-income citizens and teenagers naturally use the cheapest cigarettes available in the market. So, imposing higher / effective taxation and price on cigarettes would discourage youths and low-income people from buying cigarettes.

Every year, during the budget discussions in Bangladesh Parliament, cigarette companies talk about the pressure on the cigarette industry due to the increase in the price of cigarettes. However, for the last few years, the extent to which the price of cigarettes has increased in the national budget is not very effective because it has not been adjusted to inflation. Instead, cigarettes have become more affordable compared to other necessary commodities, especially low-tier cigarettes.

In the last five years, the Consumer Price Index increased by 32%, meaning people spent BDT 32 more in 2023-24 for the same amount of consumer goods than in 2019-20. Similarly, the number of low-tier cigarettes that were available in exchange for 100 taka before is now 122 taka for the same amount. On average, the price of cigarettes has increased by (132-122) =10 percent less than consumer goods. As a result, it has become more accessible to youths and lower-income people, so they use low-tier cigarettes.

In 2024, the average inflation rate is around 10 percent, so an effective price increase of all tier cigarettes would be significantly more than 10 percent. However, in the proposed budget 2024-25, only an 11 percent increase has been seen in low-tier cigarettes. So, the effective price increase is only 1 percent. As for others, such as medium, high, and premium categories of cigarettes will practically become more affordable after adjusting to inflation.

Anti-tobacco civic organizations proposed a substantial increase in the price of cigarettes and an effective tax considering inflation and per capita income growth. These proposals have been reflected partially but not entirely.

Effective cigarette taxation will increase the government's revenue and help protect the next generation from consuming tobacco products. It is a proven method to lessen the use of tobacco. Many studies have shown that higher taxes on tobacco products would be able to reduce smoking levels. For example, cigarette consumption decreased slightly in Nigeria after increased cigarette prices, but revenue increased. A tax increase on cigarettes increases the possibility of saving countless lives by preventing tobacco-related diseases and premature deaths. In 2012, Gambia, with the help of World Health Organization (WHO), increased cigarette prices and taxation, resulting in three times more revenue in 2018 than in 2011. Meanwhile, the import of cigarettes was reduced by 60%, and cigarette use was substantially reduced. In Colombia, the specific tax on cigarettes increased by three times in 2016, which helped cigarette consumption fall by 34%, increased revenues and decreased associated health costs.

However, in Bangladesh, tobacco tax policies are not adjusted adequately to the current high inflation, so tax weapons repeatedly fail to control tobacco consumption rates. And making it easier for tobacco companies to target future customers/ young generation. Persuasive advertising by cigarette companies is considered one of the main obstacles to protecting young people from the harmful use of tobacco.

Tax revenue will often decrease if prices increase in case of elastic good (for this type of good, the quantity demanded is highly sensitive to the price changes). However, cigarette is an inelastic good (for this type of good, the quantity demanded is less sensitive to the price changes). Therefore, the price of the cigarette can be increased to a level with effective taxation, so that government can earn more revenue. That is why, the supplemented duty on low-tier is proposed to increase from 57 to 63 percent. Even after raising the price effectively, the government will get more tax from selling low-end cigarettes. The tax revenue from other tiers will also increase due to increased selling prices. It is possible to earn 28 percent more tax revenue than before.

If taxes can be imposed effectively on tobacco products, it will reduce tobacco use, and new tobacco users can be prevented. Many premature deaths can be prevented through the taxation of cigarettes. Therefore, cigarette taxation should be a top priority for policymakers, as effective taxation can reduce cigarette consumption and significantly enhance the government’s fiscal policy and the national budget.

Dr. Nazmul Islam: Associate Professor of Economics, Bangladesh University of Engineering and Technology (BUET).