Bangladesh urged to reform tobacco taxation as losses outpace revenue

 Niemur Rahman Emon

Bangladesh collected roughly TK 40,000 core in revenue from tobacco industry during the 2024-25 fiscal year, yet the economic cost of tobacco-related illness and environmental damage surpassed TK 87,000 crore in the same period, more than double the amount earned, according to a working paper published by the Economics for Health research group.

Health economists (DU) say the gap reflects a tax system that is complex in design but weak in effect, and are calling for structural reform ahead of the 2026-27 budget.

Country has the highest tobacco-use rate in South Asia at 35.3%, against 28.6% in India and 19.1% in Pakistan, according to the World Health Organisation’s 2025 global tobacco epidemic report. Some 3 crore 78 lakh adults currently use tobacco in Bangladesh. Tobacco-related diseases kill roughly two lakh people each year, about 18% of all deaths nationally, according to Tobacco Atlas figures.

Dr Rumana Huque, professor of the Department of Economics at Dhaka University (DU) points to the pricing gap as the most visible symptom of a larger failure. Between 2016-2022, household income in Bangladesh rose 103%. Cigarette prices, particularly at the lower end, rose by only 20%-30% over a similar period. “Tobacco companies have very efficient production structures and stratified pricing strategies”, she said. “They manipulate the multi-tier system, introducing new brands at marginal price points, to absorb tax increases and protect their margins”.

She also flagged what she called a governance problem that National Board of Revenue (NBR) lacks real-time production and sales data, which makes market monitoring difficult. “The information asymmetry sits entirely with the companies”, she said, adding that QR-code and digital tracking systems remain only partially implemented.

On the wider policy contradiction, Dr Huque was direct. In 2024, the government earned TK 40,000 crore from tobacco industry while bearing health and environmental costs of TK 87,000 crore. “The revenue board works to short-term targets. It does not account for long-term productivity loss or the cost to public health in its calculations. Each ministry operates in a silo”, she said, arguing that inter-ministerial coordination and research-driven policymaking are needed to close that gap.

Prof Dr Shafiun Nahin Shimul, director of the Institute of Health Economics at DU, focuses on structural flaw in the tier system itself. About 90% of Bangladesh’s cigarette market sits within low and medium tiers. A policy change targeting only the upper 10%, he said, would reduce overall consumption by roughly 5% at most, a limited public health impact. “The more tiers you have, the easier it is for consumers to switch rather than quit”, he said. “Tax policy loses its edge”.

His proposal, shared with policymakers as part of pre-budget recommendations, is to merge low and medium tiers into a single band with a minimum retail price of TK 100 for a pack of 10 cigarettes, up from TK 60-80 respectively. The proposal also includes a specific supplementary duty of TK 4 per pack across all tiers, retaining the existing 67% ad valorem supplementary duty.

He argued that shifting partly to a specific tax, a fixed amount per pack rather than a percentage of price, limits the windfall tobacco companies currently receive when retail prices rise. “With ad valorem alone, the company’s profit grows alongside the price. A specific tax ensures the government captures that gain, not the industry”, he said.

Researchers estimate that implementing these reforms could yield an additional TK 44,000 crore in revenue in 2026-27, deter roughly 5 lakh adult smokers from continuing, and prevent more than 3.7 lakh young people from starting. Smuggling, often cited by industry as a risk of higher taxation, is comparatively low in Bangladesh, a 2019 World Bank study estimated illicit cigarette trade at just 1.8%, against 38% in Pakistan and 36% in Malaysia.

NBR chairman, Md. Abdur Rahman Khan, acknowledged at an April pre-budget consultation that cigarettes in Bangladesh are among the cheapest in the region. Whether that acknowledgement translates into the 2026-27 budget remains to be seen.