A Tale of Two Tax Systems: Why Sri Lanka Succeeds, While Bangladesh Struggles with a Broken Tobacco Tax Policy
As the 13th National Parliament prepares for its inaugural session, a critical question of national survival emerges: If Sri Lanka can successfully curb tobacco use while boosting revenue through a simple tax system, why does Bangladesh remain entangled in a complex tax structure that favors industry interests over public health?
Recent data highlights a stark contrast between the two South Asian neighbors. Sri Lanka has adopted a streamlined, “specific excise” system, applying a fixed tax per cigarette and high cigarette prices. This aggressive policy has led to falling smoking rates and sustained revenue growth. In contrast, Bangladesh continues to rely on a four-tiered “ad valorem” structure—a system based on percentages of retail price—that experts say is designed for industry exploitation.
According to The Tobacco Atlas, tobacco kills 199,149 people every year in Bangladesh. The economic damage is equally severe. While the government earns roughly BDT 40,000 crore annually from tobacco taxes, the combined cost of treatment and productivity loss from tobacco-related illnesses exceeds BDT 87,000 crore — creating a massive net loss for the economy.
Sri Lanka’s Tobacco Triumph Sends a Clear Message to Bangladesh
A proven solution exists just across the Bay of Bengal. In Sri Lanka, legal cigarette sales plummeted by 62% between 1994 and 2024. In the last eight years alone, consumption dropped by nearly 42%. Contrary to industry claims that “higher taxes reduce revenue”, Sri Lanka’s tax income from cigarettes rose by 36%, jumping from LKR 81 billion in 2015 to LKR 110 billion in 2023.
The Price of Addiction: A Regional Comparison
Nowhere is the disparity more visible than at the retail shop. In Sri Lanka, a pack of Benson & Hedges costs approximately USD 10.56 (LKR 3,300). In Bangladesh, the same pack sells for about USD 3.03 (BDT 370).
In Sri Lanka, John Player Gold Leaf is considered a premium-tier cigarette and is priced accordingly. But in Bangladesh, the same brand is placed in the high tier, making it much cheaper. As a result, a pack costs about USD 10.24 (LKR 3,200) in Sri Lanka but only USD 2.30 (BDT 280) in Bangladesh.
By keeping prices low through a tiered system, Bangladesh is keeping cigarettes affordable, especially for youth and low-income groups, encouraging “tier-jumping” (switching to a cheaper brand) rather than quitting.
The Myth of Revenue Loss
A persistent myth promoted by the tobacco industry suggests that higher taxes will lead to a drop in government revenue. However, Sri Lanka’s experience proves the opposite: well-designed specific taxes can reduce consumption while simultaneously increasing treasury inflows.
The 2025 Ordinance
The interim government took a historic step by approving the Smoking and Tobacco Product Usage (Control) Amendment Ordinance 2025. This milestone move includes increasing pictorial health warnings to 75% of the pack, a total ban on e-cigarettes, making public spaces truly smoke-free, and banning tobacco sales within 100 meters of schools and hospitals.
However, advocates warn that this progress is “fragile”. The ordinance must be passed as law in the first session of the new Parliament, or it will lapse. Furthermore, a critical loophole remains: the legality of “single stick” sales. Without a ban on individual cigarettes, millions of smokers never see the 75% health warnings on the pack, rendering the regulation far less effective.
A Roadmap for a Tobacco-Free 2040
Sri Lanka also demonstrated firm political commitment by continuing to raise tobacco taxes even during economic stress. In January 2025, the government increased cigarette excise duties again and even raised the per-stick tax on locally produced bidis. These adjustments were implemented as specific increases per stick, reinforcing administrative simplicity and preventing tax avoidance.
For Bangladesh, which has pledged to become tobacco-free by 2040, the lessons are clear. A simplified tax system with a single tier, a stronger reliance on specific excise taxes, and regular inflation-adjusted increases could significantly reduce smoking while strengthening revenue collection. The government should also place strong emphasis on controlling smokeless tobacco (SLT) products such as bidis, zarda, and gul through high specific taxation and stronger regulation.
The narrative that tobacco taxation harms government finances has long been used to resist reform. Sri Lanka’s record decisively disproves that claim. Higher taxes did not weaken revenue — they strengthened it.
Achieving a tobacco-free nation is not just a health goal; it is a prerequisite for a prosperous economy. As the new government takes its seat, the public expects bold action. If Sri Lanka has shown that aggressive taxation saves lives and money, Bangladesh has both the evidence and the opportunity to act.
Author: Ishrat Zahan Aishi, Research Associate, Bangladesh Network for Tobacco Tax Policy (BNTTP).
