Raising tobacco taxes is good public health, fiscal policy

In the last year alone, more than 100,000 Bangladeshis died from tobacco use. Tobacco is the number one cause of preventable death in the world. A quarter of the world's six million tobacco deaths take place in South Asia, which includes Bangladesh, India, Myanmar, Sri Lanka, Pakistan, Afghanistan, the Maldives, Nepal and Bhutan. Tobacco use in Bangladesh is extraordinarily high with 58 per cent of all men and 29 per cent of all women using tobacco, and these rates show no signs of abatement. Tobacco use also burdens Bangladesh's health care system and costs Bangladesh a lot in unnecessary health care costs and lost worker productivity.  As Bangladesh faces shortfalls in the availability of health care and access to doctors, nurses and hospitals, the government must work towards solutions to prevent disease and keep its citizens out of these scarce hospital beds. But there is good news. There is a solution that can help both save life and raise the much-needed government revenue: increasing tobacco taxes, some of which can be used in taking care of those suffering from tobacco-related health costs and some of which can be used to help bidi workers develop alternative livelihoods.

The tax structure in Bangladesh is very complex and it not only increases administrative costs for the government but also reduces the efficiency of the taxation system as consumers can easily switch across brands and products when taxes increase. A recent study on the impact of tobacco taxes in Bangladesh estimates that simplifying the system and imposing specific excise tax equivalent to 70 per cent of retail price of cigarettes, and up to 50 per cent of the retail price of bidis and smokeless products, would encourage at least 9.0 million adult smokers (cigarettes and bidis) to quit and keep over 7.0 million young Bangladeshis from starting smoking.

Tobacco tax hikes benefit the poor more than any other group, as tobacco users tend to be from low and lower-middle-income households. These households bear the greatest burden of tobacco-related diseases and can least afford to get treatment. Purchase of these addictive products diverts income from other essential items such as school books and food. Fortunately, the poor are the most sensitive to price increases and the most likely to stop smoking in the event of tax-driven price increases. Despite this benefit to the poor, bidis and smokeless products are currently taxed lower than any other tobacco item, the majority of them escaping taxation all together because of poor administration. Tobacco tax increases should apply to all tobacco products, including products such as bidis that are most consumed by the poor, to protect the vulnerable subsets of our population.  

Bangladeshi tobacco products are some of the cheapest in South Asia and the world. Not only increasing tobacco taxes will save lives, but also will raise the government revenue despite decreases in tobacco consumption. For bidis alone, increasing retail price (RP) to Tk. 22.3 and imposing a specific excise tax of Tk. 10.13 will encourage nearly 3.2 million adult bidi smokers to quit and provide an additional Tk 10.3 billion in tax revenue (both SD and VAT).  This is a substantial sum that the government could use to create or expand a number of public health services, including expansion of tobacco cessation, awareness, and prevention programmes or alternative livelihood initiatives for bidi rollers and tobacco farmers.

Tax increase success stories are numerous throughout the world. Chile, Spain, France, Italy, Poland, Bulgaria, Ireland, Finland and several other nations have cigarette tax rates of over 75 per cent of retail prices. In 2008 Thailand levied an 83.5 per cent excise tax on cigarettes, including a 2.0 per cent surcharge earmarked for national health programmes. In 2012 the Philippines quadrupled the tax on low- and medium-priced cigarettes and doubled the tax on high-priced brands, causing a 50 per cent increase in the average price of a pack. Additionally, they began moving toward a unitary tax rate system from the previous four-tiered system. In 2015, Kenya increased its tax by 108 per cent and switched its tax system from hybrid to a uniform specific tax.

Bangladesh can work on various tax measures, including gradually reducing the number of price slabs for cigarettes; adopting a uniform specific excise tax  for cigarettes, smokeless products and bidis. That will help raise significantly cigarette prices and reduce tobacco use, adjust annually the excise value of all tobacco products to at least the account retain real value of tobacco products (accounting for inflation and income growth) and strengthen tobacco tax administration, improve enforcement and block tax-free sale of tobacco products in order to reduce tax evasion and avoidance. It is also critical that a 2.0 per cent health development surcharge should be imposed on the sale of tobacco products (which is currently 1.0 per cent) and the revenue collected from the health development surcharge should be spent on tobacco control and addressing other NCDs.

The government of Bangladesh has the opportunity to join countries around the world in recognising that raising tobacco taxes is a good fiscal and public health policy - a win-win solution to reducing the menace of tobacco use in the country.

The writer is Director of the South Asia Programs for Campaign for Tobacco Free Kids.