Getting the fundamentals right: Why production control must come first in Bangladesh

Bangladesh is not short of policy ambition. Like many countries under fiscal pressure, it is seeking to strengthen excise revenues and modernise its tax system. Doing so, requires addressing structural imbalances in the market. 

A large share of cigarette consumption sits in the lowest price tiers, where tax yield is limited and price gaps with higher segments remain wide. Without correcting this by increasing the prices at the low end, it becomes impossible to generate meaningful revenue or reduce distortions that weaken the system. 
In addition, experience elsewhere shows that any tax reform, if not supported by supply chain controls suited to market realities, can deliver unintended outcomes.

Pakistan offers a cautionary case. Steep increases in cigarette excise duties, particularly in 2022�"23, failed to translate into proportional revenue gains, while illicit trade expanded.
A significant tax shock, combined with weak supply-chain controls, created a perfect storm: large illicit manufacturers remained outside the system, while compliant operators absorbed rising financial and administrative pressures. Consumption did not fall; it shifted into untaxed channels.

Bangladesh has already seen similar dynamics. Following the January 2025 excise increase, legal cigarette consumption fell sharply, illustrating that pricing reform alone, without effective supply-side controls, allows the market to adjust faster than enforcement.

For Bangladesh, the risk is clear. Tax reform is crucial, but only if it prevents leakage into the illicit market. That begins with a basic question: how much is actually being produced?

This matters because the market does not behave the way policy assumes. Surveys suggest that around 70 per cent of smokers purchase cigarettes as single sticks, with loose sales available almost everywhere. A pack-based system is therefore being applied to a per-stick market.
The consequences are significant. Tax stamps applied to packs lose visibility once cigarettes are sold individually. Enforcement becomes detached from how the market functions.

Without credible control of production volumes, even well-designed excise policies struggle to deliver. Higher taxes increase incentives to evade, but without visibility at source, evasion becomes difficult to detect and harder to prevent.

Faced with this, governments often turn to more sophisticated tools, enhanced tax stamps or track-and-trace systems. These have a role. But without strong foundations, they risk becoming expensive layers on a weak system.
More advanced designs can enhance security, until they are counterfeited, but their effectiveness depends on verification. In Bangladesh’s stick-driven market, where cigarettes are sold individually, consumer-level checks are largely impractical. Without consistent scanning and enforcement, more sophisticated stamps risk becoming little more than costly visual features rather than effective controls.
The solution is not complexity, but sequencing.
Before investing in system-wide upgrades, Bangladesh should focus on the most effective control point: the production line. This means licensing all factories and key equipment, installing independent monitoring on production lines, ensuring daily reporting of output, and requiring independent annual audits.

This is not about monitoring the entire supply chain. It is about ensuring that what is produced matches what is declared.

Once this foundation is in place, the system can expand. But starting with complexity, before securing visibility at source, risks repeating the same cycle: higher costs, limited enforcement, and growing illicit trade.

Excise reform must go hand in hand with supply chain controls to raise revenue without driving activity outside the system.
That starts with one principle: know what is being produced.

The writer is Senior Supply-chain Engagement Manager, BAT