Bangladesh is among the countries with the most complex tax systems for cigarettes and other tobacco products. Its multi-layered approach categorizes cigarettes into four groups: low, medium, high, and premium. To safeguard public health, the National Board of Revenue (NBR) sets maximum retail prices (MRP) for tobacco products each year during the national budget. This includes cigarettes, Bidi (handmade cigarettes), and smokeless tobacco products such as jorda and gul.

The MRP includes the cost of raw materials, production, bank interest, employee benefits and wages, trade margins for retailers, company profits, and all government-imposed taxes. These taxes consist of a 1% Health Development Surcharge, a 67% Supplementary Duty (SD), and a 15% Value Added Tax (VAT).

Currently, Bangladesh relies solely on the ad valorem system, where taxes are calculated as a percentage of MRP. Globally, however, countries frequently use either a specific tax (a fixed amount per stick or pack) or a mixed system combining both ad valorem and specific taxes.

Weaknesses of the Ad Valorem System

The main flaw of the ad valorem system is that it allows tobacco companies to increase profits without additional costs. While higher MRPs boost government revenue, company profits also increase proportionally. In practice, the ad valorem system consistently benefits the tobacco industry, which lobbies policymakers, including NBR officials, to maintain it.

Example (cigarettes):
In FY 2025–26, the MRP of a 20-stick pack of low-tier cigarettes is fixed at BDT 100, with an overall tax burden of 83%. The government collects BDT 83, while the company retains BDT 17.

If the MRP rises to BDT 120 the following year, while the tax burden remains at 83%, government revenue per pack would increase to BDT 99.60, and company profits would rise to BDT 20.40 — an extra BDT 3.40 per pack, without any additional investment or production cost.

On a large scale, the impact is enormous. In FY 2023–24, low-tier cigarette production reached 63.43 billion sticks, equivalent to 317 crore (3.17 billion) packs of 20 sticks each. With an additional BDT 3.40 profit per pack, cigarette companies earned an extra BDT 1,077 crore (BDT 10.8 billion) in a single fiscal year.

Over the last decade, multinational companies like British American Tobacco Bangladesh (BATB), which controls 87–88% of the Bangladesh cigarette market, have nearly doubled cigarette production and increased net profits nearly five-fold under this complex tax structure. Abul Khayer Tobacco holds 7%, and Japan Tobacco (JTI) holds 6% of the market. Other tobacco companies, including bidi and smokeless product manufacturers, have also benefited, maintaining this trend year after year.

If ad valorem taxation continues, tobacco industry profits will keep growing, encouraging further investment in harmful products such as e-cigarettes and smokeless tobacco, increasing public health risks.

The Solution: Introduce a Specific Tax Alongside Ad Valorem

Bangladesh’s tobacco tax system needs reform. To strengthen tobacco control, a specific tax should be introduced alongside the current ad valorem tax. If NBR imposes a specific tax of 1 Taka per cigarette stick, the policy would be highly effective in line with WHO FCTC guidelines.

For cigarettes, a 20-stick pack would still increase by BDT 20, but the entire increase would go to government revenue, leaving no additional profit for companies.

With 63.43 billion sticks of low-tier cigarettes produced in FY 2023–24, this policy would generate BDT 6,343 crore (BDT 63 billion) in additional revenue from the low-tier segment alone. The total tax burden would rise to 84% (67% SD + 15% VAT + 1% Health Development Surcharge + 1 Taka specific tax).

Total cigarette production in FY 2023–24 was 8,459 crore sticks. Applying a 1-Taka specific tax per stick would yield an additional BDT 8,459 crore (BDT 84 billion) in government revenue. The same principle can be applied to bidi and smokeless tobacco products, ensuring that any price increase directly translates into government revenue rather than company profits.

Benefits of One Taka Specific Tax Per Stick

1. Revenue boost across all tiers and products
   Applying 1 Taka per stick across all cigarette categories (8,459 crore sticks produced overall) would yield an additional BDT 8,459 crore (BDT 84 billion) for the government, on top of existing ad valorem collections. Revenue will increase proportionally with production.
2. Transparency and easier monitoring
   Revenue is directly tied to the number of sticks, preventing companies from manipulating prices between tiers. Regulatory oversight is simplified, and companies must account for each stick produced, making tax compliance and revenue collection more precise.
3. Simpler pricing
   The system eliminates awkward fractional price increases. A 10-stick pack rises by BDT 10, a 12-stick pack by BDT 12, and a 20-stick pack by BDT 20. Bidi bundles and smokeless tobacco packets follow the same principle, ensuring predictable and fair taxation.
4. Public health protection
   Higher prices make tobacco products less affordable, reducing consumption. Since most cigarettes in Bangladesh are sold as single sticks, young and occasional smokers will face additional costs, creating an opportunity to curb cigarette use and improve public health outcomes.

Conclusion

For the upcoming fiscal year, Bangladesh must complement the existing ad valorem system with a specific tax of 1 Taka per cigarette stick and equivalent rates on bidi and smokeless tobacco products. This reform will significantly increase revenue, eliminate excess profits for tobacco companies, and, most importantly, promote public health.

Author Information:

Sushanta K Singha, Special Correspondent, Ekattor Television & Tobacco Control Researcher

Ibrahim Khalil, Senior Project and Communication Officer, Bureau of Economic Research, University of Dhaka

Source ১. https://tinyurl.com/ycka7juz

২. https://www.sushantaksingha.com/2025/09/06/unpacking-mrp-violations-how-cigarette-companies-exploit-consumers-and-avoid-taxes/

৩.  https://wclh2020.abstractserver.com/WCLH2020_abstract_book_high.pdf