Experts called for a shift to a specific tobacco tax system, fewer price tiers, and a multi-year roadmap to improve revenue collection while curbing tobacco consumption in Bangladesh, at a Policy Research Institute (PRI) dialogue.
They said the current tax structure is complex and increasingly ineffective, as repeated price and duty hikes are delivering only marginal revenue gains while encouraging consumers to switch to cheaper products and expanding illicit trade, the organisers said in a press release.
An assessment by Ernst & Young (EY) shows tobacco tax revenue growth has slowed in real terms since 2019–20 despite higher tax rates and prices.
Sharp price and excise increases in June 2024 and January 2025 reduced cigarette volumes, resulting in only marginal growth in nominal revenue and almost stagnant growth in real terms, the report said.
The analysis also found Bangladesh’s tobacco tax incidence has reached around 83 per cent of the retail price, among the highest globally, limiting scope for further revenue gains through additional tax increases alone.
EY also noted that back-to-back tax hikes have pushed cigarette prices significantly higher, while creating opportunities for illicit trade when adjustments are abrupt, and widening the indexation gap between top and low tiers, which is driving down overall industry value.
Experts said the multi-tier tax structure is a key source of distortion.
Bangladesh currently applies four cigarette price tiers, each with its own minimum retail price. On top of this, each tier is subject to supplementary duty, value added tax, and a health development surcharge, together accounting for about 83 per cent of the retail price.
They said the system’s complexity undermines administrative efficiency and revenue predictability.
Frequent and abrupt tax adjustments are also disrupting the market, encouraging downtrading to lower-tier products and creating conditions for illicit trade.
To address these issues, experts proposed a gradual transition from the existing ad valorem system to a specific excise regime, where tax is fixed per unit, which would simplify administration and provide more stable and predictable revenue outcomes.
They also recommended introducing a multi-year roadmap to progressively reduce the number of price tiers, allowing the system to move towards a simplified structure over time while avoiding sudden price shocks.
Experts further stressed the need to strengthen enforcement, enhance market monitoring, and introduce modern systems to track cigarette production at factory level to curb illicit trade and safeguard revenue.
They warned that the current tax structure has reduced net returns for legitimate manufacturers, making illicit trade increasingly attractive.
Speakers said a balanced, transparent, and forward-looking tobacco tax framework is needed to ensure sustainable revenue growth, support investment, and maintain stability while continuing efforts to reduce tobacco consumption.
The session featured a keynote presentation by EY, with opening remarks by PRI Research Director Bazlul Haque Khondker and moderation and closing remarks by PRI Principal Economist Ashikur Rahman.
Participants included Institute of Inclusive Finance and Development Executive Director Mustafa Kamal Mujeri and former National Board of Revenue member Md Farid Uddin.
Bangladesh Institute of Development Studies Research Director Mohammad Yunus and The Financial Express Editor Shamsul Huq Zahid were also present.
Samakal Associate Editor Zakir Hossain and BRAC Institute of Governance and Development Visiting Research Fellow Khondokar Shakhawat Ali took part in the discussion.
Dhaka University Lecturer Wasik Sajid Khan and British American Tobacco Group Head of Fiscal Affairs and International Trade Simon Trussler also joined the session.
