Economics of Smokeless Tobacco Taxation in Bangladesh
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BRAC University, Bangladesh
Publication date: 2019-03-26
Tob. Prev. Cessation 2019;5(Supplement):A117
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With 22.0 million (20.6%) adult people using smokeless tobacco (SLT), Bangladesh is one of the largest SLT consuming countries in the world (WHO, GATS, 2017). Of SLT users, 16.2% are men and 24.8% are women. The Global Youth Tobacco Survey (GYTS), 2013 reveals that more students were SLT users (4.5%) than smokers (2.9%). The prevalence of SLT use is alarming because Bangladesh ranks the second (next to India) in 34 high SLT burden countries (Sinha and Yadav, 2017).

Objectives and methods:
The study attempts to examine the present structure of SLT taxes in Bangladesh, and estimate the own-and cross-price elasticities of demand for SLT products with a view to suggesting more appropriate SLT tax pricing strategies for designing effective SLT tax policy in Bangladesh. For examining the SLT tax structure, we have used the secondary data collected from the National Board of Revenue (NBR), and other relevant data. In order to estimate the price elasticities of demand for SLT products, we have used Deaton Model (1997) which exploits price variation over space to estimate price elasticities using household survey data. We have used Household Income and Expenditure Survey (HIES) 2016 data of Bangladesh Bureau of Statistics (BBS) for estimating price elasticities of demand for SLT products.

Significance of the study:
The significance of undertaking this study is due to several reasons. Firstly, SLT has received little attention in terms of quality research and evidence-based policy making in Bangladesh. Secondly, the HIES, 2016 of the BBS shows that on average, the consumption of SLT products accounts for the largest share being 1.4 per cent of the total household budget. Thirdly, SLT holds the potential for increasing the tax revenue of the government as the revenue share of SLT products is only 0.14 per cent of the NBR revenue.

The government has developed a complex multi-tiered ad valorem SLT tax system, which creates a number of problems. The tax base for SLT is tariff value, which is much lower than the retail price. The overall taxation on SLT remains generally low, making it readily affordable to people especially women. Low SLT price also encourages downward substitution from smoked to SLT and discourages quitting behavior. The estimate of own-price elasticity of demand for SLT products is -0.24 (inelastic demand), which is consistent with the available evidence (Nargis et al, 2014). Rural households are found to be more responsive to change in prices of SLT products than urban households.The poor households are more responsive to the changes in the price of SLT products than the rich households.

Our findings suggest that using the tax system to increase significantly the prices of SLT products would lead to a substantial reduction in SLT use while increasing government revenue. The tax base for SLT needs to be changed from tariff value to retail price. Measures may be taken to harmonize tax rates across tobacco products to avoid substitution of one tobacco product by another. Policymakers may introduce specific excise system replacing the existing ad valorem for substantially contributing to the revenue collection from SLT products.

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