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Tobacco cos depriving govt of revenue

Published : 05 Oct 2022 10:06 PM | Updated : 06 Oct 2022 12:41 PM

A recent study shows that tobacco companies are depriving the government of huge amounts of revenue through selling cigarettes at prices higher than the maximum retail price.

According to the study carried out by the Bureau of Economic Research (BER) of Dhaka University and the Bangladesh Network for Tobacco Tax Policy (BNTTP), the government is losing revenue of about Tk 13.68 crore per day, while the amount is about 4993 crore per year. 

The government is losing this revenue as cigarettes are sold in the open market at higher prices than the retail price set by the government. 

The BER and the BNTTP conducted the research under the title ‘Impact of Price and Tax Changes in the National Budget 2021-2022 on the Wholesale and Retail Prices of Tobacco Products (Cigarette and Bidi): A Cross-sectional Survey’.

Based on the findings of this study and also complaints from the Directorate of National Consumer Rights Protection, the National Board of Revenue (NBR) has taken the initiative in this regard.  

The Large Taxpayers’ Unit (LTU) of the NBR formed an inquiry committee to investigate the matter of the revenue evasion by the tobacco companies through selling cigarettes at prices higher than the maximum retail price.

A source of the NBR confirmed the matter. According to the source, the LTU monitored the market, collected information from the field level and verified the authenticity of the complaint submitted by the Directorate of National Consumer Rights Protection. The LTU found the complaints true. 

The matter was also confirmed from a recent letter regarding a views-exchange meeting on the issue signed by Waheeda Rahman Choudhury, commissioner at LTU (VAT). It was written in the letter that the government is being deprived of a huge amount of revenue for the sale of cigarettes at prices higher than the maximum retail price.

Waheeda Rahman Choudhury of NBR’s LTU said that the director general of the Directorate of National Consumer Rights Protection was also invited in the views-exchange meeting as it was held with the department. 

Dr Rumana Huque, a professor of Economics at Dhaka University and convener of the BNTTP; told Bangladesh Post that they sent the research report to the officials concerned of the NBR and the LTU. Besides, a complaint has also been filed to the Directorate of National Consumer Rights Protection on behalf of the BER. Later, the Directorate of National Consumer Rights Protection wrote a letter to the NBR. “We thank the NBR for taking initiative in this regard and forming an inquiry committee,” she said. 

Dr Rumana Huque said that about Tk 20 crore is going out of the consumers’ pockets every day due to the malpractice of the tobacco companies. 

However, it was alleged that although ‘Maximum Retail Price’ is mentioned in the VAT law and regulations, tobacco companies influenced the authorities concerned to write ‘Sales Price or Retail Price’. The LTU has written to the NBR to amend the rules in order to prevent revenue evasion. 

Dr Rumana Huque suggested that the ad-valorem tax system needs to be replaced with a specific tax system and the market sales of each product should be monitored digitally. Digital systems should also be introduced in tax collection; while the cigarette taxation system should be brought to one tier instead of multiple tier. 

She also suggested that the retail sale of single-stick cigarettes and bidis should be banned. Because the government is losing huge revenue and the tobacco consumers are also being encouraged through this practice.

She said that punitive measures must be taken to prevent tax evasion; while a national tobacco tax policy needs to be formulated to tackle the overall issues related to tobacco control and build a tobacco free Bangladesh by 2040.

According to the data collected in the survey of the BER and BNTTP, the maximum retail price printed on the 20-stick cigarette pack of premium tier brands (Benson, Benson Switch, Benson Light, and Marlboro) was Tk 270. However, the retail seller has to pay Tk 269.98 on an average for a pack to the company representative and/or local wholesaler and they are selling each 20-stick pack for Tk 294.29.

Although the maximum retail price is Tk 162 printed on a 12-stick pack, retailers are buying at an average price of around Tk 162 and selling at an average of Tk 172.85 which is 7% higher than the MRP. In the case of selling the sticks as a single unit rather than in a pack, the price of each stick is kept at Tk 15.

Ibrahim Khalil, project officer at BER, said that when cigarettes are sold at prices higher than the prescribed price, it is also causing financial loss to the consumers.

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