DHAKA, May 18, 2026 (BSS) – Researchers today warned that the rapid expansion of the illicit tobacco market in Bangladesh is causing a significant loss in government revenue and undermining public health goals, urging authorities to reform the existing tobacco taxation system and strengthen enforcement measures.

The observations came today at a press briefing and research presentation on the “Combating Illicit Cigarette Trade to Protect Public Revenue in Bangladesh," at Policy Research Institute (PRI) conference room in the city.

 PRI Chairman Dr. Zaidi Sattar and PRI Research Director Dr. Bazlul Haque Khondker spoke on the occasion and presented the state of the illicit cigarette market in Bangladesh during the 2024–2025 period.

Presenting the findings, Dr. Zaidi Sattar said the illicit tobacco market witnessed a big jump over the past year as rising inflation and declining purchasing power pushed smokers toward cheaper and untaxed products.

He said cigarette demand remains relatively inelastic, meaning consumers continue smoking even when prices rise, but many shift from legal products to illicit alternatives when taxation becomes excessive.

Referring to the concept of optimal taxation, he explained that beyond a certain threshold, higher tax rates become counterproductive as they discourage legal consumption and expand the illegal market instead of increasing state revenue.

According to the researchers, the current overall tax burden on cigarettes in Bangladesh stands at around 83 percent, including Supplementary Duty (SD), Value Added Tax (VAT), and Health Development Surcharge.

Dr. Bazlul Haque Khondker said the expansion of illicit tobacco trade could result in a potential revenue loss of nearly Tk 47 billion for the government in 2025, marking a 106 percent increase compared to the previous year.

He said legal cigarette consumption dropped sharply from 74.6 billion sticks to 61.3 billion sticks, a decline of 13.3 billion sticks, during the period under review.

However, total cigarette consumption fell by only 2.2 billion sticks — from 80.6 billion to 78.4 billion sticks—as illicit products filled much of the gap created by declining legal sales, he added.

The volume of illicit cigarettes increased from 4.46 billion sticks to around 7 billion sticks, while cigarettes sold below the government-mandated floor price surged from 1.56 billion sticks to more than 10 billion sticks, the study found.

He recommended shifting from the existing ad valorem taxation system to a specific tax structure based on per-stick or per-pack taxation, which they said is widely practiced in Europe and Japan.

He also called for rationalisation of the four-tier cigarette pricing structure and floor prices to make legal products more competitive against illicit trade.

Among other recommendations, the study proposed establishing a centralized tobacco tax administration under the Large Taxpayers Unit (LTU), forming a multi-agency task force involving the National Board of Revenue (NBR) and Border Guard Bangladesh (BGB) to combat smuggling, and strengthening factory-level supply chain monitoring.

The study further suggested imposing strict penalties against the sale of cigarettes below the official floor price.

The discussion also highlighted the risk of smokers shifting to other tobacco products such as bidi, jorda, and gul, which remain less regulated and insufficiently monitored.

Responding to a query on whether higher cigarette taxes could encourage users to shift toward narcotics such as Yaba, the speakers said no conclusive evidence currently exists to establish a direct link, although they acknowledged narcotics remain a serious concern in Bangladesh.