FE REPORT
The government continues to lose revenue due to the growth of the illicit tobacco market amid higher tax rates, said researchers at a programme on Monday.
The purposes of the higher taxes on cigarettes are to generate revenue and discourage people from smoking on health grounds but the existing taxation couldn't help meet the goal, they said.
They were addressing a press briefing and research presentation on the "Combating Illicit Cigarette Trade to Protect Public Revenue in Bangladesh," at Policy Research Institute (PRI) conference room in the city.
PRI Chairman Zaidi Sattar chaired the event while PRI Research Director Bazlul Haque Khondker presented the keynote paper.
Taxation helps generate revenue but after a certain point revenue generation falls and illicit markets expand which is called optimal tax rate and the existing tax rate is optimal and revenue will not grow further with the existing rate, Zaidi Sattar explained.
People couldn't leave the habit of smoking easily. Meanwhile, poverty and inflation have driven people to look for cheap arrangements in alternative ways causing a revenue leakage, Zaidi Sattar said, suggesting reforms in the existing tobacco taxation system.
He also said that the NBR floor price for cigarettes is also a problem, adding that tax rationalisation could cut the illicit market.
In his presentation, Mr Khondker said that in the last fiscal the government hiked the tax by seven per cent to 83 per cent but the revenue didn't increase despite the consumption rising significantly.
Total illicit volume rose 56.91 per cent, reaching 7 billion sticks in 2025. Duty Not Paid (DNP) cigarettes account for the largest share, with revenue losses of Tk 37.40 billion -- up 106.13 per cent.
The government would lose potential revenue of about Tk 47 billion in 2025, marking a 106 per cent increase compared to the previous year. Furthermore, legal cigarette consumption dropped sharply from 74.6 billion sticks to 61.3 billion sticks, according to his presentation.
The total cigarette consumption fell by only 2.2 billion sticks - from 80.6 billion to 78.4 billion sticks. However, the illicit cigarette filled much of the gap. Therefore, the real consumption picture is not coming, he explained.
He recommended establishing a centralised tobacco tax administration under the Large Taxpayers Unit (LTU), forming a multi-agency task force involving the National Board of Revenue (NBR) and Border Guard Bangladesh (BGB) to combat smuggling, and strengthening factory-level supply chain monitoring.
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