A tobacco tax policy that is simple, transparent and sustainable is essential, speakers said at a roundtable organised by the Policy Research Institute (PRI), stressing the need for a realistic framework that supports revenue stability, administrative efficiency and broader economic activity.
The discussion, titled “Tobacco Tax – Short-Term Gain vs Long-Term Sustainability”, was held on Wednesday at PRI’s office in Banani.
The session featured a keynote presentation by a representative from Ernst & Young (EY) followed by opening remarks by Dr Bazlul Haque Khondker, Research Director at PRI. Dr Ashikur Rahman, Principal Economist at PRI was the moderator and also gave the closing remarks and concluded the discussion.
Participants included Dr Mustafa Kamal Mujeri, Executive Director of the Institute of Inclusive Finance and Development (InM); Md Farid Uddin, former member of the National Board of Revenue (NBR); Dr Mohammad Yunus, Research Director at BIDS; Shamsul Huq Zahid, Editor of The Financial Express; Zakir Hossain, Associate Editor of Samakal; Khondokar Shakhawat Ali, Visiting Research Fellow at BIGD; Wasik Sajid Khan, Lecturer at the University of Dhaka; and Simon Trussler, Group Head of Fiscal Affairs and International Trade at BAT.
EY’s recent assessment of Bangladesh’s cigarette market showed, growth in tobacco tax revenue has slowed in real terms since 2019-20, despite significant increases in tax rates and prices. The report highlighted that sharp price, and excise increases in June 2024 and January 2025 led to a decline in cigarette volumes, resulting in only marginal revenue growth.
The analysis also found that Bangladesh’s tobacco tax incidence has reached around 83 percent, among the highest globally, limiting the scope for further revenue gains through additional tax increases alone.
The EY analysis further noted that back-to-back price and excise increase in June 2024 and January 2025 pushed average cigarette prices significantly higher with marginal increase in tobacco tax revenue growth in nominal terms and almost stagnant growth in real terms, and paved the opportunity to expand the illicit market when tax adjustments are abrupt. Also, the indexation gap between top and low tiers is driving the value of the industry down.
Speakers opined these trends highlight the need for a more predictable and structured approach to taxation that balances revenue mobilization with market stability. They noted that frequent price and tax adjustments can disrupt the market, encourage downtrading to lower-tier products and create conditions for illicit trade.
Participants said the current multi-tier tax structure remains complex and can undermine revenue predictability. Currently, Bangladesh applies four separate price tiers for cigarettes, each with its own minimum retail price. On top of this, every tier is subject to a supplementary duty, VAT and a health development surcharge. Combined, these taxes amount to a striking 83% of the retail price. They emphasized the need for a gradual transition from an ad valorem system to a specific excise regime, which is easier to administer and provides more stable 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.
Speakers further stressed the need to strengthen enforcement, enhance market monitoring, and introduce modern systems to track production of cigarettes at factory level to curb illicit trade and safeguard revenue. They warned that the current tax structure has reduced net returns for legitimate manufacturers to a level where illicit trade is becoming increasingly lucrative, underscoring the need for a balanced approach that combines sustainable policy with effective enforcement.
Concluding remarks called for a balanced, transparent and forward-looking tobacco tax framework is essential to ensure sustainable revenue growth, support investment, and maintain stability in the sector.
