BACKGROUND: Despite industry claims that higher taxes drive illicit trade, empirical evidence in this regard is limited in the Bangladeshi context. Therefore, an understanding of the extent and the dynamics of illicit cigarette markets is crucial for evidence-based policymaking. This study presents an independent estimate of the size and evolution of the illicit cigarette market in Bangladesh between 2009 and 2017.
METHODS: Using the gap analysis method, the study estimated the size of the illicit cigarette market by comparing reported cigarette consumption from surveys with legal sales data obtained from government records. Two rounds of Global Adult Tobacco Survey (GATS) were used to generate the estimates and to have an understanding of the dynamics of the changes. Sensitivity analyses were conducted to account for potential underreporting and data limitations. We also compared changes in illicit market size to relative change in tax rates over time.
RESULTS: The study indicates that the share of the illicit cigarette market compared to in Bangladesh declined from 31% in 2009 to 13% in 2017 (conservative estimate), with central estimates showing a decline from 16% to 2%. Legal sales of cigarettes grew at a faster rate than reported consumption, indicating a reduction in illicit market size. Despite sustained tax increases, there was no evidence of illegal significant trade expansion during 2009-2017.
CONCLUSIONS: The findings demonstrate that even with continued increases in taxes on cigarettes, the illicit cigarette trade in Bangladesh remains low and has declined over time. Our findings provide evidence against the argument often spearheaded by the tobacco industry that higher taxes lead to increased illicit trade. Therefore, policymakers should not hesitate to implement substantial tax hikes to reduce smoking prevalence but should simultaneously strengthen enforcement measures to minimize any potential risks of illicit trade.