The Complicated Cigarette Tax Structure in Bangladesh is Causing Expansion of the Low-Tier Cigarette Market and Lower Tax Revenue

This Policy Brief was written by Advancement Through Research and Knowledge (ARK) Foundation in Bangladesh. The policy brief examines the impact of the expansion of the low-tier cigarette market. The country's lower ad valorem excise tax on low-tier brands paired with the recent increase in the difference between the base price of low- and medium-tier cigarettes incentivized British American Tobacco (BAT) to introduce a new low-tier brand. The researchers estimate that this shift has resulted in a government revenue gap between 2.73 billion and 9.84 billion Bangladeshi taka. The study also simulates alternative cigarette tax policies. Increasing the price of cigarettes alone would benefit the industry, increasing BAT's revenues between 2.13 billion and 7.73 billion taka, further prompting manufacturers to expand the low-tier market and increasing the tax revenue gap for the government. On the other hand, implementing a uniform ad valorem tax rate for all tiers in addition to increasing the base price of low-tier cigarettes would increase government tax revenues between 34.90 billion and 42.01 billion taka, while reducing industry revenues. This would discourage the tobacco industry from further expanding in the low-tier market. The policy brief concludes by recommending this strategy for the government in order to raise tax revenue and prevent attempts from cigarette companies to avoid taxes. 

A corresponding Working Paper can be found here.