Tk4,000cr vanishes into cigarette supply chain: Who pockets the extra money?

Highlights:

• Cigarettes widely sold above government-set Maximum Retail Prices across Bangladesh
• Retailers overcharge because distributors sell near official retail prices
• Government may lose over Tk4,000 crore annually in tax revenue
• Single-stick cigarette sales significantly increase illegal price markups
• Authorities acknowledge overpricing but enforcement remains weak and complaint-driven
• Experts urge wholesale pricing reforms and stricter market monitoring

Despite clear legal provisions that prohibit retailers from charging more than the Maximum Retail Price (MRP) printed on product packaging, cigarettes continue to be sold above the government-set price across Bangladesh, a long-running practice that experts say is depriving the government of thousands of crores of taka in revenue while enriching the distribution chain.

A market investigation by The Business Standard found that virtually every cigarette brand is being sold above its printed MRP, because cigarette companies sell to distributors at or virtually at the MRP itself, leaving no margin for retail sellers.

Experts estimate the government could be losing more than Tk4,000 crore in potential revenue annually from the low- and mid-tier cigarette segments alone.

Under the FY2026-27 budget, the government fixed the MRP of a 10-stick pack of low-tier cigarettes at Tk62, mid-tier at Tk92, high-tier at Tk160 and premium-tier at Tk210.

But market visits reveal a different reality.

A 10-stick pack of low-tier Derby is selling for around Tk80. A 20-stick pack of mid-tier Camel costs Tk200, while a 10-stick pack of high-tier Gold Leaf sells for Tk180-190 depending on the location. Premium-tier brands are retailing at Tk430-440 for a 20-stick pack.

As a result, a Benson & Hedges cigarette officially priced at Tk21 per stick is being sold for around Tk23, with similar markups observed across nearly all brands.

Single-stick sales widen the gap

The overpricing becomes even more apparent in the single-stick market, where most cigarette sales take place.

According to an analysis by the Power and Participation Research Centre (PPRC), no smoker can buy a low-tier cigarette at the official Tk6.20 per stick; the market price is Tk7. Likewise, mid-tier cigarettes sell for Tk10 instead of the government-set Tk9.20.

Since excise duty and VAT are calculated on the official MRP rather than the actual selling price, the additional money collected from consumers is never reflected in government revenue.

PPRC estimates this loophole alone may be costing the government more than Tk4,000 crore every year from the two largest market segments.

A 2018 study under the STOP initiative by Dr Arifa Hasnat Ali found that 99% of surveyed retailers sold cigarettes individually rather than by the pack.

Another study conducted in 2021 by researcher Md Al-Amin Parvez, based on interviews with 3,000 adult smokers, found that 57% regularly purchased single sticks instead of full packs.

Why retailers charge above MRP

Economists say the problem lies in the way cigarette prices are structured.

Unlike most consumer goods, where manufacturers sell products to wholesalers below the printed MRP to leave room for legitimate distribution margins, cigarette companies sell to distributors at or virtually at the MRP itself.

Dr Shafiun Nahin Shimul, professor and director of the Health Economics Department at Dhaka University, said retailers therefore have little option but to charge above the printed price to earn a profit.

"The printed MRP is supposed to be the maximum price a consumer pays. But because distributors receive cigarettes at that price, retailers recover their margins by selling above it," he explained.

How the distribution chain adds markups

Wholesaler Saiful Alam described how prices increase at every stage of the supply chain.

According to him, local wholesalers pay Tk7-10 more per carton of 20 packs than the company price, while retailers pay another Tk15-20 extra.

Market data reflects this pricing pattern. A carton containing 20 packs of low-tier Derby is priced at Tk1,440, equivalent to Tk72 per pack. Mid-tier brands such as Navy, Star and Camel cost Tk1,840 per carton, or Tk92 per pack.

Because retailers mainly sell cigarettes individually, a low-tier pack effectively generates at least Tk80 in retail sales, while a mid-tier pack yields around Tk100 – even though taxes are collected only on the official Tk72 and Tk92 values.

Authorities pass responsibility

An NBR official involved in VAT policy, requesting anonymity, said there is no legal provision allowing cigarettes to be sold above the printed MRP.

"The price printed on the packet is supposed to be the retail selling price," the official said.

However, when asked why overpricing continues unchecked, the official said monitoring falls under the Directorate of National Consumer Rights Protection.

Muhammad Hasanuzzaman, assistant director of the Dhaka District Consumer Rights Protection Department, said cigarettes are generally excluded from routine market monitoring because they are not considered essential commodities.

"However, if we receive a written complaint, we will investigate and take necessary action," he said.

BAT says it follows the law

Responding to TBS queries, British American Tobacco (BAT) Bangladesh said it distributes cigarettes to retailers in packs and complies with all applicable laws and regulations.

How so?

Speaking on condition of anonymity, a BAT distributor told The Business Standard, "Consumers can buy cigarettes directly from us at MRP. But they must purchase a full carton containing 20 packs."

This means a buyer must purchase in bulk to get the product at retail price, which contradicts the idea of retailing.

Officials concerned at Abul Khair Tobacco were unavailable for comment on this matter.

What needs to change

Public health and tax experts argue that simply fixing the MRP of cigarette packs is insufficient.

They recommend that the government determine wholesale, distributor and retail prices, specify official prices for individual cigarette sticks, strictly enforce the ban on single-stick sales and strengthen market monitoring.

Dr Shimul said the current pricing structure reverses normal business practice by leaving no legal margin for retailers.