Terming the existing tobacco tax regime ineffective in cutting consumption, Policy Exchange Bangladesh (PEB) has backed a specific excise tax, saying the current structure has nearly reached its limits.
Bangladesh’s tobacco tax incidence stands at about 83 per cent of cigarette sales proceeds, placing the country among the highest-taxed cigarette markets globally, yet smoking levels remain high.
According to PEB, the constraint lies in the multi-tier ad valorem system, which allows smokers to move to cheaper brands and gives manufacturers scope to adjust prices, weakening the impact of higher taxes.
This design has reduced the effectiveness of repeated increases in supplementary duty and cigarette prices, leaving limited fiscal space for further hikes without undermining revenue stability.
A PEB study found that a fully specific excise tax—imposed as a fixed amount per cigarette—would address these weaknesses by strengthening the price signal faced by consumers.
Under such a system, cigarette consumption would decline by an additional 8.6 per cent over 10 years, while cumulative revenue would rise by around Tk22,000 crore compared to the existing structure, the study said.
Tobacco taxation currently contributes around 9 per cent of total government tax revenue in Bangladesh, with cigarettes taxed through a four-tier ad valorem supplementary duty system alongside value-added tax (VAT) and a health development surcharge (HDS).
Recent revenue trends reflect the system’s declining responsiveness. The January 2025 increase in cigarette prices and supplementary duty resulted in a 5 per cent rise in state revenue, compared to a 17 per cent increase following similar measures in fiscal year 2015 (FY2015).
The findings were presented at a media awareness session on evidence-based tobacco tax reform, where economists said the current tax framework is nearing its revenue ceiling and further ad valorem-based adjustments are unlikely to deliver meaningful gains.
The research compared three excise structures for Bangladesh: the existing four-tier ad valorem system, a fully specific excise system, and a mixed system combining specific and ad valorem components. Both alternative models outperformed the current structure in revenue stability and consumption reduction.
“Bangladesh’s tobacco tax burden is already high, but the structure is ineffective. A shift to a specific excise system is rational because it limits price manipulation, curbs down-trading and strengthens the impact of taxation on consumption,” said economist Masrur Reaz, chairman and CEO of PEB.
International experience supports this approach, said Hasnat Alam, economist and senior manager at PEB, noting that countries relying more on specific excise taxes secure more predictable revenue flows and stronger tobacco control outcomes.
Citing the World Health Organisation, Alam said the number of countries using pure specific tobacco tax increased to 70 in 2024 from 56 in 2008, while only 33 nations now follow pure ad valorem taxation, down from 56.
Nations adopting mixed systems, combining specific and ad valorem elements, rose from 45 to 67.
The PEB study also highlighted the need to strengthen tax administration, recommending digital tax stamps printed on cigarette packs, volume verification systems, automated compliance reporting, centralised and risk-based field supervision, and integrated audit and stamp management platforms to curb evasion and counterfeiting.
PEB urged the government to adopt a multi-year roadmap for tobacco tax reform, including tier simplification, inflation-indexed rate adjustments and enhanced monitoring capacity, to ensure a smooth transition and sustained fiscal and public health gains.
Separately, the Power and Participation Research Centre (PPRC) said late last year that tobacco tax revenue in Bangladesh falls short of the national economic cost of widespread smoking.
Experts at the event also spoke for specific tobacco tax.
