A recent simulation-based study conducted by Policy Exchange, offers valuable insight into the performance and future potential of Bangladesh’s cigarette taxation framework. The findings challenge a long-held assumption within fiscal policymaking: that simply raising taxes - without addressing the underlying structure - automatically leads to higher revenue and stronger public health outcomes.
The study compares three different tax models: the existing four tier ad valorem excise system, a fully specific excise model, and a mixed system. Through this comparison, it demonstrates that structural reform is not only beneficial but increasingly necessary for Bangladesh to achieve both revenue efficiency and public health goals.
The analysis finds that moving to a fully specific excise system - where a certain tax amount is applied per stick rather than as a percentage of price - would deliver significantly stronger results.
According to the model, cumulative government revenue over the next ten years would increase by approximately BDT 22,000 crore compared to what the current system would generate. This dramatic improvement stems from the predictability, transparency, and reduced loopholes inherent in a specific excise structure.
Importantly, the advantages are not limited to fiscal gains. The study also shows that cigarette consumption would decrease by an additional 8.6% under a fully specific excise system.
This reduction represents a meaningful step toward achieving national public health objectives. A system that is both more effective at curbing consumption and more efficient at raising revenue presents a rare winning scenario for policymakers - strengthening the state’s financial capacity while advancing long-term health outcomes.
International experience supports this approach, said Hasnat Alam, economist and senior manager at Policy Exchange Bangladesh, noting that countries relying more on specific excise taxes secure more predictable revenue flows and stronger tobacco control outcomes.
Citing the World Health Organization, Alam said the number of countries using pure specific tobacco tax increased to 70 in 2024 from 56 in 2008, while only 33 nations now follow pure ad valorem taxation, down from 56.
PEB also urged the government to adopt a multi-year roadmap for tobacco tax reform, including tier simplification, inflation-indexed rate adjustments and enhanced monitoring capacity, to ensure a smooth transition and sustained fiscal and public health gains.
The research findings reinforce a clear conclusion: reforming the existing tax structure is not merely an option but a strategic necessity. A move toward a fully specific excise system promises stronger revenue performance, a more resilient tax architecture, and measurable improvements in public health - providing policymakers with compelling evidence to modernize the current framework.
