Tobacco Industry Leaders Voice Serious Concern At Interim Budget Measures That Will Negatively Impact Employment, Foreign Investment, And Industry Sustainability5 min read

Managing Directors (MDs) of the three major players in the cigarette manufacturing sector have expressed deep concern over the recent fiscal policy revisions, particularly the significant increase in supplementary duties (SD) on the cigarette industry, according to a press release.

The MDs of BAT Bangladesh, JTI Bangladesh, and Philip Morris Bangladesh stated that they “feel compelled to publicly express concerns” regarding the revised tax measures, as they expect serious implications that threaten the business sustainability in the country, said the release.

“While we fully recognize and support the government’s need to increase internal revenue, we strongly believe that the recent policy changes will have serious long-term consequences for the industry’s sustainability, the economy, and the livelihoods of millions who depend on it,” they said in a statement.

A recent Oxford Economics report highlights that in FY 2022–23, the cigarette industry contributed BDT 346.4 billion in tax receipts, accounting for 11.6% of Bangladesh’s tax revenues, which is almost 10 times higher than the global average of tobacco tax accounting for 1% of the nation’s tax revenues. It also noted that the largest FDI inflow in 50 years occurred when Japan Tobacco International acquired Dhaka Tobacco Industries for approximately USD 1.5 billion. The report further mentioned the societal contribution the industry made locally, supporting an estimated 1.6 million jobs in Bangladesh.

Industry leaders raised their voice that the tobacco industry has become one of the country’s highest revenue-generating sectors that has aided the economy in times of crises, providing a double-digit growth in revenue year-on-year. In the 2023-24 fiscal year alone, the industry contributed approximately Tk 40,000 crore in revenue, 16 percent up from the previous year’s contribution.

In the last decade, the tax rates in the tobacco sector have increased substantially in Bangladesh, from 66% of the retail price in 2014 to 77% in 2024. Within six months since the last tax increase by the government, the National Board of Revenue (NBR) has increased the tobacco tax rate to an even higher 83% of the retail price for the whole market this January.

This change was announced and implemented without any formal industry consultation, said the press release. The industry predicts that the latest tax hike will lead to a decline in volume and margin of the legitimate industry – adversely impacting the livelihoods of 4.4 million people across the value chain, including over 150,000 farmers, 1.3 million retailers, and labourers in the country, the release added.

In addition to the tobacco tax increase, the cigarette industry in Bangladesh pays another 47.5 percent corporate tax, which is one of the highest in the world. The three tobacco industry leaders make up approximately 90 percent of the total industry in terms of revenue contribution in Bangladesh.

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The three MDs further expressed their disappointment with the lack of consultation and abrupt policy change. They said, “Despite having the largest and one of the oldest Foreign Direct Investment (FDI) in this sector, the industry was blindsided with the latest policy change, which creates a perception of policy inconsistency and ultimately impacts both domestic and international investor confidence in a negative way.”

Monisha Abraham, Managing Director, BAT Bangladesh, remarked, “As the highest taxpayer of the country and a publicly listed company, it is extremely concerning for us to see such significant excise increase in only a span of seven months. This, coupled with increasing costs of sales, will threaten industry sustainability. Furthermore, the troubling departure from established policymaking norms, such as stakeholder consultation, sends out a negative signal on the business climate of the nation.”

Paul Holloway, Managing Director, JTI Bangladesh, said, “JTI is a recent and significant investor in Bangladesh, with JT Group investing around $2 billion in the last six years. A cornerstone of attracting and retaining foreign investment is providing a sustainable and predictable business environment. Sudden changes in tax levels without proper industry consultation, especially when introduced with immediate effect, are contrary to this principle. We urge the government to engage the industry in meaningful discussions to create a taxation model that meets government revenue targets, provides a fair operating environment for tax-paying companies, and includes a calendar of annual increases. With this in place, all parties will benefit.”

Reza-ur-Rahman Mahmud, Managing Director, Philip Morris Bangladesh, added, “The government should consider implementing a structural reform to the existing tobacco taxation system, focusing on long-term sustainability and predictability. Rushed decisions, such as the drastic excise increase and the significant import duty hike for unmanufactured tobacco, move in the opposite direction. Moreover, the import ban on Electronic Nicotine Delivery Systems (ENDS), which are legally available in more than 90 countries, ignores scientific evidence and restricts the access of adult smokers to better alternatives, to the detriment of public health.”

The MDs have urged the government to reverse recent SD increases, develop a long-term fiscal roadmap to prevent further shocks for the industry, and ensure meaningful stakeholder consultation to craft sustainable policies.

“We do believe there is a way to embed a long-term fiscal policy for this sector that will continue to protect government revenue, local job opportunities, and FDIs to contribute to the economic growth of the country. At the same time, we advocate a sensible fiscal policy that does not put excessive burden on the consumers, which would enable tax and price increases in line with what consumers can afford. We stand ready to continue working with the government to find future-fit solutions that ensure sustainable revenue generation as well as industry sustainability,” they said.

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