Interferences | Tobacco Price and Tax

Tobacco Industry Arguments Against Tobacco Taxation

Tobacco industry has historically been arguing against tobacco taxation, opposing any govt. decision that may cause hike in taxes and prices in both Bangladesh and abroad. In Bangladesh, tobacco industry often claims that rise in tobacco taxation may cause spike in illicit tobacco trade, loss of govt. revenue, decrease in FDI influx and massive job loss in tobacco and related sectors.

‘Higher taxes mean more illicit trade and less revenue’

Each year before the declaration of national budget, tobacco companies and their association Bangladesh Cigarette Manufactures’ Association (BCMA) claim that any increase in tobacco taxes would result in spike in illicit tobacco trade and the government would lose significant amount of revenue as a result.

On 14 April 2017, during a pre-budget meeting between the National Board of Revenue (NBR) and BCMA, Chairman of British American Tobacco Bangladesh (BATB) referred to the cigarette industry as the proverbial golden goose. He said, “A large sum of revenue comes from the cigarette industry. The NBR should adopt such policies so that the tobacco industry survives and keeps supplying revenues to NBR.” He added, “The revenue policy regarding cigarette has led to a spike in influx of illicit cigarettes... NBR and the Police alone cannot put an end to the influx. This should be eliminated through policy. While formulating the budgetary policies, one should keep illicit tobacco trade in mind.”[1]

A similar fear mongering tactic was found in a letter sent to the Finance Minister by BCMA. On 15 September 2019, BCMA sent a letter addressed to the Finance Minister, with copies sent to Finance Secretary, Health Services Secretary and Chairman of National Revenue Board (NBR) to raise its objections against the draft National Tobacco Control Policy (NTCP).[2] At the beginning of the letter, BCMA mentioned, ‘...member companies of BCMA have been contributing large sums of revenues to the govt. exchequer throughout the years. In the last FY alone, the govt. earned Taka 28,000 crore from the cigarette industry which stands for almost 12 percent of total internal revenue income of the govt.” BCMA tried to persuade the govt. against raising taxes and prices, claiming “the recent increase in cigarette prices was not at par with the inflation of the economy which eventually led the consumers to tax-evading low-price cigarette brands. Not only do these cigarette brands harm the govt. revenue earnings but also damages the condition of public health.”[3]

Apart from tobacco companies’ active manipulation, every year in the days before the budget, some articles and opinion pieces of similar nature surface in different media outlets to reinforce the industry expectations. The articles usually portray tobacco taxation as a mere tool for revenue generation, downplaying its role in discouraging tobacco use. Such an article, written by the Executive Director of Policy Research Institute (PRI), presented its tobacco tax proposals for the FY 2020-21 and commented, “This is a win-win for everyone and the consumers are not impacted because they mostly buy in terms of sticks.”[4] Translated versions of the article in Bangla and English were published in multiple media.[5] It should be noted PRI mentions BATB as one of its clients.[6]

  • Validity of the argument:

The reality, as revealed in multiple studies, does not seem to conform to BCMA’s claim that increased taxes will lead to tax evasion and illicit tobacco trade.

According to a World Bank report titled Confronting Illicit Tobacco Trade: A Global review of Country Experiences, published in February 2019, the increase in tobacco taxes has barely any relation with illicit trade of cigarettes and the percentage of illicit trade of tobacco in Bangladesh stands at merely 1.8 percent, the lowest in 27 countries. The report also states that illicit tobacco trade constitutes 17 percent of tobacco trade in our neighboring country India, 38 percent in Pakistan, 36 percent in Malaysia and the highest 50 percent in Latvia.[7]

The report also says that the illicit tobacco trade stands at US$ 4 million a year in Bangladesh, less than 4 percent of total tobacco revenue. In 2019, it was revealed in a report titled ‘Ashes to Ashes’ by the UK-based Tax Justice Network (TJN) that “Bangladesh lost $5.8 million in tax in 2016 owing to British American Tobacco’s Bangladesh operations shifting some of its profits to its associate company in the UK where it paid almost no tax”. Between 2014 and 2016, BAT Bangladesh declared $21 million a year in obligations owed to BAT’s UK subsidiaries in royalties, technical and advisory fees and IT charge, which was equivalent to 15 percent of BAT’s pre-tax profits for the period. The payments allowed the BATB to avoid paying corporate tax on the sum, costing Bangladesh US$5.8 million in lost tax in 2016 -- enough to cover the government’s per capita health expenditure for over 170,000 citizens for a year. [8]

While BATB frequently postulates that raising taxes means increased tax evasion, the company found itself at the centre of tax evasion scandal on several occasions. In 2018, NBR accused that British American Tobacco Bangladesh (BATB) evaded Tk 1,863 crore in VAT and supplementary duty in eight months.[9] Previously in August 2017, Bangladesh journalist network the Anti Tobacco Media Alliance (ATMA) revealed that the British High Commissioner in Bangladesh Alison Blake had lobbied on behalf of BATB in a tax dispute with the Bangladesh Board of Revenue (NBR). According to ATMA, BAT owed the NBR unpaid Value Added Tax (VAT) originally worth TK 1,924 crore.[10]

‘Tobacco tax is already too high’

Tobacco companies always object that the existing tax on tobacco products in Bangladesh is already one of the highest in the world, and thus there is no need for increasing taxes in national budget.

During the pre-budget meeting with NBR in 2017, BATB Chair said, "Nowhere in the world is there so many taxes on cigarettes. While bidi and cigarettes both have almost same number of users, there is no coordination between taxation on the two products. Moreover, corporate tax is also higher compared to other companies."[11] Similar claims have been made by BCMA in its 2019 letter to the Finance Minister on draft NTCP.

Bidi industry owners and workers also raise this issue on a regular basis. On 1 September 2020, during a press conference organized by Bidi Workers Federation, speakers dubbed the taxes on bidi as “illogical” and alleged that taxes had been raised in a conspiracy to destroy the industry.[12]

  • Validity of the argument:

While tobacco companies claim that taxes on tobacco products are too high in Bangladesh, the reality is due to the absence of an effective tobacco tax structure, tobacco products are still cheaper and more affordable in Bangladesh than in most countries of the world. A 2021 World Health Organization (WHO) report analyzed the average price of a cigarette pack containing 20 cigarettes in different countries and found out that average price of cheapest cigarettes is more than twice in India than it is in Bangladesh. With the exception of Myanmar, Nepal, Cambodia, Afghanistan and Pakistan , Bangladesh has the cheapest cigarette prices in the South and South-East Asian region.[13]

In an affordability analysis of different tiers of cigarettes by PROGGA (Knowledge for Progress) using Relative Income Price (RIP) method shows that in 2015-16, the purchase of 1000 sticks of medium, high and premium tier cigarettes required 4.15, 6.46 and 9.32 percent of per capita GDP respectively. However, in 2017-18, these same number of cigarette sticks required only 3.27, 5.09 and 7.34 percent of per capita GDP respectively. This suggests that the real price of cigarettes has fallen to a considerable extent over the years and the inefficient tobacco taxation has barely produced any output to reduce the number of cigarettes.[14]

‘Higher taxes will lead to massive lay-offs’

Several organizations, affiliated with the bidi industry, often tend to raise objection that tax and price measures, as proposed and finalized in the national budget, are distructive to the bidi industry interest and  would lead to massive lay-offs in the industry. Such objections are raised every year, before and after national budget, regardless of the type and extent of budgetary measures taken. Regional Bidi Workers Federation, Bidi Industry Owners Association, Bidi Consumers Association are some of the organizations that raise such objections on a regular basis, which are later supported by a number of labor leaders, university teachers, members of parliaments (MPs) and research organizations.

On 7 September 2020, in a post-budget press conference organized by Tobacco Farmers and Traders of Greater Rangpur, the speakers claimed that hundreds of thousands of bidi workers were losing their jobs as bidi factories collapsed one after another due to higher taxes.[15]

On 17 June 2020, locally-owned cigarette factory workers also claimed that the proposed tax measures for FY 2020-21 would lead to closure of the locally-owned cigarette industry and cause massive lay-offs.[16]

A country-wide demonstration by a Bidi Consumers Association, on 21 May 2019, called for the withdrawal of all types of taxation on bidi industry.[17]

On 19 May 2018, in a seminar organized by Bidi Workers Federation, the speakers claimed that 2 million workers involved in the bidi industry would become jobless. The seminar was also attended by three MPs, one professor from University of Dhaka and prominent left-wing leaders.[18]

On 10 June 2014, in a similar seminar organized by the same entity, it was claimed that the budgetary measures for FY 2014-15 threatened the livelihoods of 2 million bidi workers.[19] Also in 2014, in another press conference organized by Research and Development Collective (RDC), a research organization frequently found to be vocal against taxation on bidi industry, it was claimed that around 25 lakh people were engaged in 90 bidi factories in the country and 27 lakh workers became jobless since 2001.[20] Again in 2017, in a similar press conference, RDC claimed that the proposed taxes on tobacco for FY 2017-18 would destroy the local bidi industry and render some 15-20 lakh workers jobless.[21]

  • Validity of the argument:

Different studies suggest that pro-bidi industry groups have magnified the size of bidi industry workforce to a great extent.

In a study conducted by regional journalists and supported by US-based Campaign for Tobacco Free Kids (CTFK), it was revealed that the number of bidi industry workers stood around 65,000, concentrated in 117 bidi factories in 31 districts.[22] In 2019, the National Board of Revenue (NBR) released a report titled ‘The Revenue and Employment Outcome of Biri Taxation in Bangladesh’ which refuted the claims made by pro bidi industry groups regarding the size of bidi industry workforce. As per the study, the total number of full-time equivalent workers, including those regular, irregular, and contractual, are only 46,916 worked in the 198 functional biri factories on a regular basis.

‘Higher Taxes will repel possibilities of more FDIs into the country’

This argument is being used regularly since the entrance of Japan Tobacco Inc.(JTI) in the country’s tobacco market in 2018. The Japanese Ambassador to Bangladesh has been raising concerns that Bangladesh government's tobacco taxation and other measures have been hurting the business interests of Japan Tobacco International (JTI). In November 2019, the Japanese Ambassador to Bangladesh in a bi-lateral meeting with the Industry Minister requested him to bring "rational" changes in the country's excise tax on tobacco products based on the fact that Japan Tobacco generates large amounts of revenue for the government.

Then again in January 2021, in a letter[23] addressed to the Finance Minister, the Japanese diplomat expressed his discontent at increased taxes imposed on tobacco by the National Board of Revenue (NBR) in the fiscal 2019-20. The letter said, “The tax rise was a diversion from the 'usual pattern' adopted for years and significantly hit JTI [Japan Tobacco International] due to their reliance on the medium segment of the market.” The letter tried to establish that if Bangladesh, through relaxing tobacco taxation and other measures, does not curb regulations on JTI, it will not see any further Japanese investment. The Japanese ambassador, in his letter, said Japanese investors were intently watching the actions of the Bangladesh government and further investments from Japan would depend on the success of Japan Tobacco. “Taking care of existing investors is the best route to bring in new investment in the country from the view of fairness of competitiveness," the letter says.

The Japanese diplomat complained about Bangladesh's tobacco tax policy once again in his letter to Bangladesh Competition Commission, as reported by Bangladeshi media in July 2021.[24]

Apart from JTI, BCMA also mentioned the tobacco FDI in its letter to the Finance Minister in 2019 on the issue of draft NTCP. The letter said, “Tobacco industry can play a positive role in the development of the economy of Bangladesh as long as it keeps attracting FDI. If the govt. shuts down the channels bringing investments in this sector, then the economy will go through its detrimental effect.”

  • Validity of the argument:

JTI’s investment in Bangladesh has been widely regarded as an ominous sign by anti-tobacco and public health activists of the country. Speaking during an event in Dhaka, Saber Hossain Chowdhury MP said, India banned FDI in tobacco, Bangladesh should follow suit. He added that not all FDI brought good for the country and building a tobacco-free would be impossible if Bangladesh wanted to keep tobacco as a profitable business.[25]

JTI's business in its home market in Japan market has recently decreased by 5.1 per cent due to strict regulation by Japanese government.[26]  In 2010, Japan's government raised cigarette taxes by 40% at one go, the biggest ever tax increase on tobacco products, which caused prices of most popular brands to go from $3.60 to $4.90 (from 300 yen to 410 yen). These cheaper segments of cigarettes saw their latest tax hike in Japan in October 2020.[27] Acquisition of Dhaka Tobacco is a part of scaling up of its global business in 130 countries; it also completed acquisition of Russia's tobacco company Donskoy Tobak in early-August of 2018. The acquisition, however, goes against the core spirit of the World Health Organization’s Framework Convention on Tobacco Control (FCTC). As a signatory of the FCTC, Bangladesh is committed towards reducing production and consumption of tobacco, both locally and globally.

In April 2020, the government of India banned FDI in cigarette manufacturing. The move to ban foreign investments in cigarette manufacturing came up soon after Japan Tobacco announced its intention to raise stake its Indian arm to 74% from 50%. There has been no instance of FDI being allowed in cigarette manufacturing during the recent past. British American Tobacco, the single largest shareholder in ITC, had tried in the past to hike stake in ITC, but did not meet with success.[28]


[13] WHO report on the global tobacco epidemic 2021, (Annex, Table-9.2) accessed February 2022