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Exclusive Interview

BD must prioritise broadening tax net for its sustainable transition to a developing country: Simon Trussler

Published : Monday, 23 December, 2024 at 12:00 AM  Count : 796
Mizanur Rahman
In an exclusive interview with the Daily Observer, Simon Trussler, Group Head of Fiscal Affairs and International Trade for British American Tobacco (BAT) Bangladesh, said fiscal policies based on expertise and wide range of experience is needed to achieve good results. 

On a question how he would see multinational companies can contribute to the future growth of the country's economy, he said Bangladesh is on an exciting growth path, and our industry can play a crucial role in achieving economic sustainability and community development. 

He said BAT is operating in Bangladesh for 115 years and is proud of making significant contribution to its growth, jobs creation and revenue generation. The company's operations here span from seed to retail, covering agriculture, manufacturing, distribution, retail, and exports. 

"Bangladesh has the potentials to widen the tax net, not only depending on few industries like tobacco but on multiple others areas. The government can increase welfare spending by multiplying revenue sources and it needs far reaching strategies."      

A recent report by Oxford Economics found that 1.6 million jobs are supported by the tobacco industry in this country contributing to Tk 225 billion to the nation's GDP. He expected that tobacco industry, including BAT, will continue to play a unique role in spurring Bangladesh's growth.

On a question what fiscal policy he recommends to support Bangladesh's smooth transition to a developing country, Trussler said to ensure a sustainable transition the country must prioritise broadening its tax base and improving tax-GDP ratio.  

He said Bangladesh ranks eighth lowest in terms of government revenue-to-GDP ratio among 118 countries in the IMF's Government Finance Statistics database. This limits the government's capacity to spend on essential public services. 

"I believe there is considerable scope to ensure tax compliance and widen the tax base," he emphasised.  

Currently Bangladesh is highly reliant on indirect taxes. This is especially the case when it comes to taxes from the tobacco sector as it contributing around 10 per cent of total government revenue through supplementary duties and VAT alone. When you include income tax, corporate tax and dividend payments, this contribution becomes even more substantial, he said.

Trussller said excise tax on cigarette and sales account for 10 per cent of Bangladesh's government revenue, whereas the global average is 1.5 per cent. But in Bangladesh context, for harnessing higher revenue to support growth, it's essential to continue high tax ratio on cigarette so we can keep on contributing to the economy.

On a question if he sees the main ingredients for sustainable tax revenue  depending on tax from tobacco Trussler said Bangladesh's unique tax system combines government control over minimum prices and tax rates across four market segments. 

Tax rate on cigarettes is among the highest here in global standard having risen from 66 per cent of the retail price in 2013-14 to 77 per cent in 2023-24 fiscal year. He said Bangladesh is one of 20 per cent of countries worldwide that exceed the WHO's target for 75 per cent of cigarettes price to be taxed.

The high taxes on cigarettes place a huge strain on legal businesses by leaving very little margin to cover production costs.

"I think since 90 per cent of cigarettes sold legally are in two lowest market segments, there is potential to increase tax revenues by raising minimum prices in these categories," he said. 

But it's important that this is done carefully, considering inflation, household income, and the consumer price index, to prevent fueling the growth of illicit market. A balanced approach is crucial for ensuring sustainable revenue growth while maintaining market stability.

He said the National Board of Revenue (NBR) needs to be careful in fixing new cigarette prices and taxes. It should carefully increases prices aligned with consumers' purchasing power, especially as Bangladesh recovers from global inflationary crisis.

Between 2021 and 2023, real wages in Bangladesh fell by over 3 per cent. Real incomes are expected to grow again in 2025, but the cost of living is still a big concern, he said.

Revenue generated from selling cigarettes after taxes leaves very small margins for producers to cover their costs. Further tax hikes could lead to closure of legitimate producers and a rise in illicit market. 

"I am confident that cautious and progressive fiscal policies will help ensure sustainable revenue growth and stabilise the market," he said.

Trussler praised the talent of the new generation workers and professionals now being exported. He said the country's young talent pool, known for their adaptability and commitment to growth, has been instrumental in meeting global market demands and positioning Bangladeshi professionals as valued contributors worldwide.

He said "BAT is happy to see that more than 50 Bangladeshi professionals are thriving at mid to senior-level roles across its global offices." Their drive, competence, and resilience reflect the broader capabilities of Bangladesh's workforce, "he said.


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