Are tobacco and alcohol duties increasing in FY27 budget?

The government is preparing to increase taxes on tobacco products in the upcoming FY2026–27 national budget by raising so-called “sin taxes,” with an additional revenue target of around Tk6,000 crore in the next fiscal year.

Currently, total revenue from tobacco products, including value-added tax and supplementary duties, exceeds Tk40,000 crore annually.

Officials said cigarette prices may rise across four tiers – premium, high, medium and low – with the government determining price tiers while collecting around 83% of the final price in taxes, including VAT, supplementary duty and health surcharge.

Under the ad valorem taxation system, higher retail prices directly increase government revenue.

Meanwhile, the budget may impose a specific VAT of Tk400 per litre on domestically produced liquor.

Debate over tax structure for cigarettes

Large tobacco companies had reportedly lobbied to replace the ad valorem system with a specific tax structure, under which the government would set a fixed tax rate while companies determine retail prices.

However, a senior National Board of Revenue official, speaking anonymously, said internal analysis shows that such a shift could reduce revenue by around Tk4,000 crore.

“We have calculated that under their proposed formula, revenue would decrease by nearly Tk4,000 crore rather than increase. Therefore, the likelihood of adopting a specific tax system is low,” the official said.

Under a specific tax system, companies could potentially adjust prices to maximise profits, a concern also raised by some experts who argue that it may reduce the government’s ability to capture revenue growth through price adjustments.