A shift from the existing ad valorem tax system to a specific tax regime on tobacco products could generate more than Tk22,000 crore in additional revenue over the next 10 years, beyond normal growth, according to a study by Policy Exchange Bangladesh (PEB).
The findings were presented at a research dissemination event held at a hotel in the capital yesterday (27 January).
Speaking at the event, PEB Chairman Dr M Masrur Reaz said adopting a specific tax system could not only boost revenue but also reduce tobacco consumption by up to 8% over the same period.
“The government should move away from the current ad valorem taxation policy and adopt a specific tax system,” he said.
Tobacco remains a major revenue-generating sector in Bangladesh. In the last fiscal year, the government collected around Tk40,000 crore from the sector, accounting for nearly 9% of the National Board of Revenue’s (NBR) total revenue collection.
Over the past few years, the government has repeatedly increased tobacco tax rates and prices. As a result, total tax incidence on premium-tier cigarettes has reached around 83%.
At present, the NBR sets cigarette prices under four different tiers, with a supplementary duty of 67% imposed across the categories. Under the current ad valorem system, government revenue automatically increases when cigarette prices rise.
However, the PEB noted that under a specific tax regime, taxes would be imposed as a fixed amount per unit instead of a percentage of price, with a floor price set at the consumer level.
The study was presented by Hasnat Alam, economist and senior manager at PEB.
Despite tobacco’s significant contribution to revenue, experts at the event stressed that the sector’s health and environmental costs far outweigh its fiscal benefits.
According to a study by the Institute of Health Economics at the University of Dhaka, the health and environmental costs of tobacco consumption in 2024 amounted to Tk87,000 crore — more than double the revenue earned from the sector.
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