Tobacco businesses to face higher taxes

Cigarette makers are expected to face higher taxes on their gross receipts from the next fiscal year as the National Board of Revenue (NBR) seeks to collect more taxes and discourage the health-hazardous business.

The tax administration made the proposal in the Income Tax Bill 2023 placed by Finance Minister AHM Mustafa Kamal in parliament on June 8. The Bill will replace the existing Income Tax Ordinance 1984.

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As per the proposed law, manufacturers of cigarettes, bidi or handmade cigarettes, chewing tobacco and smokeless tobacco will need to pay a 3 per cent tax on their turnover as the minimum tax, up from 1 per cent currently.

Also, the NBR wants to slap a flat 10 per cent tax deducted at source (TDS) on the supply of tobacco leaf by traders to tobacco companies, replacing the present multiple rates of TDS.

The total economic cost of tobacco use was estimated at Tk 30,560 crore in 2017-18 when tobacco tax revenues stood at Tk 22,810 crore.

"We have proposed a hike in tax rates to discourage tobacco use," said a senior official of the NBR.

In Bangladesh, 35 per cent of adults are currently using tobacco in either smoked and/or smokeless form, according to the World Health Organisation.

Bangladesh is one of the largest tobacco-consuming countries in the world and has the ninth highest prevalence of smoking out of 109 countries with available data, according to Tobacconomics, a programme of the University of Illinois in Chicago.

In 2018, tobacco use killed almost 126,000 people, it said.

The total economic cost of tobacco use -- from lost productivity to direct healthcare expenses -- was estimated at Tk 30,560 crore in 2017-18 when tobacco tax revenues from supplementary duty and value-added tax amounted to Tk 22,810 crore.

"The adverse effects of tobacco cultivation on the environment and the livelihoods of farmers are enormous as well," it said in a paper.

Bangladesh's farmers planted tobacco on 100,000 acres in 2021-22 to grow 92,000 tonnes of the crop, which was 3 per cent higher than the previous year, as per data from the Bangladesh Bureau of Statistics.

The NBR has also increased the prices of cigarettes in the low-end to premium segments for 2023-24 and raised the prices of bidi and jarda, otherwise known as chewing tobacco, to discourage consumption.

Nasiruddin Ahmed, a former chairman of the NBR, said increased taxes on the tobacco businesses is a good initiative.

"But it is not that significant."

Atiur Rahman, chairperson of the Unnayan Shamannay, a think-tank, also welcomed the move.

"We appreciate the NBR for responding positively to the call of raising tobacco taxes by the social activists."

However, the former governor of the central bank said, there is more scope to raising taxes on tobacco products, particularly at the lower end.

"This will help raise revenue substantially which is needed so badly at this difficult time of economic stress in Bangladesh."