The government has lost an estimated Tk8,500 crore in tobacco revenue due to policy gaps, an uneven tax structure, and rising illicit trade, according to the National Cigarette Manufacturers Association (NCMA).
The findings were presented at a pre-budget meeting at the National Board of Revenue (NBR) on Monday in a report titled “Cigarette Industry Overview”.
NCMA said a large portion of the market has moved outside the tax net, while the illicit cigarette trade has weakened revenue collection.
The report was presented by Abul Khair Tobacco representative Sheikh Shabab Ahmed, with officials from British American Tobacco (BAT) Bangladesh, Japan Tobacco International, and Philip Morris present.
NBR Chairman Md Abdur Rahman Khan chaired the meeting.
According to the report, revenue growth from the tobacco sector slowed to 5 per cent in FY2024–25 from 14 per cent a year earlier.
Policy changes in the interim budget triggered a nearly 20 per cent contraction in legal cigarette volumes, contributing to the shortfall.
Legal cigarette sales fell to 6,563 crore sticks in FY2024–25 from 8,433 crore sticks a year earlier, indicating a shift towards untaxed channels.
The illicit market now accounts for around 1,800 crore sticks annually, the report showed.
NCMA also highlighted disparities in the tax structure, with taxes on premium cigarettes rising marginally while duties on low-priced products increased sharply over the past five years.
Prices in the low segment have risen faster than inflation, putting pressure on lower-income consumers.
Manufacturers said the imbalance has pushed the low-tier segment into negative growth, while higher-end products remain profitable.
This has created space for illicit operators offering cheaper, untaxed alternatives.
The association estimates that about 15 per cent of the cigarette market is now dominated by illegal or tax-evading products, with more than 30 such factories and several unregulated processing units operating in the country.
Despite the challenges, government revenue from cigarettes is projected to reach Tk44,966 crore in FY2025–26, reflecting strong growth over the past five years.
NCMA proposed shifting from the current ad valorem tax system to a specific or hybrid model to improve stability and reduce tax evasion.
It also called for rationalising tax rates, particularly in the low segment, and strengthening enforcement against illegal production.
The association said these measures could recover up to Tk10,000 crore annually by bringing lost volumes back into the formal tax net.
BAT Bangladesh Head of External Engagement Arafat Jaigirdar said the current 83 per cent tax rate is nearing its “revenue peak”, indicating limited scope for further increases under the existing structure.
He called for a shift towards a specific or mixed tax system and a structured dialogue among stakeholders to support reforms.
NBR Chairman Md Abdur Rahman Khan said the authority is considering introducing QR or unique identification codes on cigarette packs to help verify tax compliance and curb illegal products.
He said the current overall tobacco tax burden of around 83 per cent, including VAT, supplementary duty, and health development surcharge, is unlikely to increase further.
However, upward adjustment of the minimum prices may be considered, he added.
