Monday, 29 May, 2023

Govt loses Tk 57bn revenue for cigarette price gap

Both single stick cigarettes and cigarette packets are currently being sold at a higher price than the market price, a study shows

  • Special Correspondent
  • 12 May, 2023 12:00 AM
  • Print news

The government is losing a revenue of around Tk 56.6 billion due to a wide gap between the declared and the market prices of cigarettes, speakers said at a discussion.  
In the current tax structure, cigarettes are sold in four tiers and each of these tiers has a fixed minimum declared price.
But, in reality, both single stick cigarettes and cigarette packets are currently being sold at a higher price than the market price.
However, the cigarette companies pay taxes to the government according to the declared price.
As a result, consumers are buying cigarettes at a higher price, but the government isn’t receiving any revenue from this additional expenditure.
A small-scale market assessment by the non-governmental research organisation Unnayan Shamannay presented the findings from a study at a virtual discussion titled “Impact of the Gap between Declared Price and Market Price on Government Revenue” on Thursday.  The panelists of the aforementioned discussion session included Senior Research Fellow of the Bangladesh Institute of Development Studies (BIDS) Dr. S.M. Zulfiqar Ali and Research Director of Centre for Policy Dialogue Dr. Khondaker Golam Moazzem.  Lead Economist of Unnayan Shamannay Robert Shuvra Guda presented the results of the market assessment.
He stated, “Due to the gap between declared price and the market price, the government is losing revenue worth almost Tk 56.6 billion. We conducted the study by collecting data from cigarette sellers of Dhaka and Rajshahi cities and Sirajganj municipality.”
Robert Shuvra Guda said, “The findings suggest that for a 20-stick packet, consumers on an average pay an additional Tk 11.5 for low-tier cigarettes, around Tk 15.5 for medium-tier cigarettes, and around Tk 10.5 for high-tier cigarettes.”
“But the gap is the biggest for premium-tier cigarettes, which have been observed to be sold for Tk 24 more than the declared price on an average. This leads to the loss of a huge amount of potential government revenue.”
The speakers, based on the results of this small-scale survey, recommended some reforms in the taxation policy.
Significant points of these suggestions were to set the minimum declared price above the current market price in the 2023-24 fiscal year, to bring the retail price of the low-tier and medium-tier brands at the same level, and instead of the current four-tier system implementing a two-tier system.
These will, on the one hand, discourage the masses to smoke, and on the other hand, will enable the government to collect its due revenue, the recommendations said.  
During his speech, panelist of the session Dr. Khondaker Golam Moazzem praised Unnayan Shamannay and the other organisations active in the anti-tobacco campaign.
He pointed out that alongside change in the taxation policy of tobacco products, attention should also be diverted to production and distribution of these products to reduce tobacco consumption.
Mostafizur Rahman, Lead Policy Advisor of Campaign For Tobacco Free Kids Bangladesh (CTFK), observed, “If retail price of low-tier cigarettes increased, it will create pressure on the low-income households to reduce consumption of cigarettes.”
In his speech, Senior Research Fellow of BIDS Dr. SM Zulfiqar Ali said, “This is a combined war, sale and consumption of tobacco products cannot be eliminated using only a single policy instrument like tax.”
He said, “Cigarettes and other drugs have a low price elasticity. Therefore, the price of these products must be increased by a significant margin.”
Dr. Ali, however, added, “Increasing the price of tobacco-products by a significant margin won’t have any major impact on the revenue earnings of the National Board of Revenue (NBR) in the short run.”