Low-priced cigarettes: a potential source of higher revenue for NBR
Thursday, 5 May 2011
FE Report
While the National Board of Revenue (NBR) burns midnight oil at the time of national budget formulation to find new sources of revenues, it has been ignoring, for reasons best known to it, a source -- low segment of cigarettes produced locally -- potential enough to fetch higher revenues. According to cigarette industry insiders, the tax incidence in the case of low segment, which accounts for 55 per cent of the country's cigarette market, is the lowest, 48 per cent. The tax rate is also among the lowest in the world. The tax rate for the same segment in India is 56 per cent, Pakistan 53 per cent, Sri Lanka 60 per cent, Cambodia and Vietnam 65 per cent each. In contrast, the tax rates of other segments in Bangladesh--- medium, high and premium-are among the highest in the world, sources said. While the NBR has increased the prices by revising the price slabs of medium, high and premium segments in recent years, it has been, conspicuously, indifferent to the need for raising both price slab and tax rates for the low segment cigarettes. Sources said the consumption of low segment cigarettes has gone up following switch over of medium segment cigarette and bidi consumers to the low segment ones. When the prices of upper segment brands have more than doubled during last five years, the price of the low segment cigarettes has remained almost unchanged. Knowledgeable circles question the wisdom of the NBR for not tapping adequately a potential source of higher revenue. They feel that by raising both price slab and tax rate for low segment of cigarettes, the NBR could achieve twin objective of fetching higher revenue and discouraging people from smoking. According to an estimate, if the government raises the tax rate for low segment of cigarettes from the existing 48 per cent to 55 per cent and re-adjusts the price slab beyond taka 12 per pack of 10 sticks, it can fetch an additional revenue of Tk. 12.64 billion. So, sources said, it remains a choice before the NBR whether it should generate more revenue by raising both tax rate and price slab for low segment cigarettes or allow the continuation of existing rates with a view to encouraging more and more people to pick up smoking of low-priced cigarettes.
While the National Board of Revenue (NBR) burns midnight oil at the time of national budget formulation to find new sources of revenues, it has been ignoring, for reasons best known to it, a source -- low segment of cigarettes produced locally -- potential enough to fetch higher revenues. According to cigarette industry insiders, the tax incidence in the case of low segment, which accounts for 55 per cent of the country's cigarette market, is the lowest, 48 per cent. The tax rate is also among the lowest in the world. The tax rate for the same segment in India is 56 per cent, Pakistan 53 per cent, Sri Lanka 60 per cent, Cambodia and Vietnam 65 per cent each. In contrast, the tax rates of other segments in Bangladesh--- medium, high and premium-are among the highest in the world, sources said. While the NBR has increased the prices by revising the price slabs of medium, high and premium segments in recent years, it has been, conspicuously, indifferent to the need for raising both price slab and tax rates for the low segment cigarettes. Sources said the consumption of low segment cigarettes has gone up following switch over of medium segment cigarette and bidi consumers to the low segment ones. When the prices of upper segment brands have more than doubled during last five years, the price of the low segment cigarettes has remained almost unchanged. Knowledgeable circles question the wisdom of the NBR for not tapping adequately a potential source of higher revenue. They feel that by raising both price slab and tax rate for low segment of cigarettes, the NBR could achieve twin objective of fetching higher revenue and discouraging people from smoking. According to an estimate, if the government raises the tax rate for low segment of cigarettes from the existing 48 per cent to 55 per cent and re-adjusts the price slab beyond taka 12 per pack of 10 sticks, it can fetch an additional revenue of Tk. 12.64 billion. So, sources said, it remains a choice before the NBR whether it should generate more revenue by raising both tax rate and price slab for low segment cigarettes or allow the continuation of existing rates with a view to encouraging more and more people to pick up smoking of low-priced cigarettes.