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Loose Borders & Booming Trade in Bangladesh

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Loose Borders & Booming Trade in Bangladesh Bangladesh TOBACCO UNDERGROUND: LOOSE BORDERS & BOOMING TRADE IN BANGLADESH FHM HUMAYAN KABIR OCTOBER 2010 1 Bangladesh CONTENTS Executive Summary ........................................................................................................... 5 Chapter – I: Research Idea ................................................................................................. 8 1.1 Introduction ....................................................................................................................... 8 1.2 Bangladesh and Tobacco Smuggling ................................................................................... 9 1.3 Study Objectives .............................................................................................................. 10 1.4 Limitations of the study .................................................................................................... 11 1.5 Methodology & Data Source ............................................................................................ 11 1.5.1 Brainstorming and Idea Generation ........................................................................... 12 1.5.2 Building Rapport ........................................................................................................ 13 1.5.3 Data Collection ......................................................................................................... 13 2 Chapter–II: Tobacco Industry ..................................................................................... 15 2.1 Tobacco Industry in Bangladesh ....................................................................................... 15 2.1.1 Market Structure: Tobacco Manufacturing ................................................................. 15 2.1.2 Legal Market .............................................................................................................. 16 2.1.3 Economic Impact of Tobacco use .............................................................................. 16 2.1.4 Health Impact of Tobacco Use .................................................................................. 17 3 Chapter–III: Illegal Trade ............................................................................................ 18 3.1 Types of Illegal Trade in Bangladesh ................................................................................. 18 3.1.1 Illegal Manufacturing ................................................................................................. 18 3.1.2 Smuggling .................................................................................................................. 19 3.2 Routes of illegal Trade ...................................................................................................... 19 3.2.1 Bangladesh-Myanmar Border ..................................................................................... 21 3.2.2 Bangladesh-India Border ............................................................................................ 24 3.3 Diversions from Ports of Entry .......................................................................................... 25 3.3.1 Sea Ports .................................................................................................................... 25 3.3.2 Airports ...................................................................................................................... 27 3.4 Illicit Manufacturing of Bidis ............................................................................................. 28 4 Chapter – IV: Economic Impact .................................................................................. 32 4.1 Impact of Illicit Tobacco Trade on Bangladesh Economy .................................................. 32 4.1.1 Revenue from Tobacco .............................................................................................. 32 4.2 Fiscal Loss ........................................................................................................................ 33 4.2.1 Tax Evasion ................................................................................................................ 33 4.2.2 Economic Loss from Smuggling of Cigarettes ............................................................. 33 4.2.3 Economic Loss from Smuggling of Cigars ................................................................ 36 4.3 Estimated revenue losses across tobacco products ............................................................ 36 4.3.1 Revenue Loss from Cigarettes .................................................................................... 37 4.3.2 Revenue Loss from Cigars (Churut): ........................................................................... 38 2 Bangladesh 4.4 Money channel ................................................................................................................ 38 4.5 Threats to National security .............................................................................................. 39 4.6 Factors Facilitating the Illicit Trade of Tobacco ................................................................. 39 5 Chapter–V: Illegal Trade Protection ............................................................................ 40 5.1 Policy Framework for Combating Smuggling .................................................................... 40 5.1.1 Anti-Smuggling Laws .................................................................................................. 40 5.1.2 Tax & Duty Structure in Bangladesh ........................................................................... 40 5.2 Tax measures .................................................................................................................... 41 5.2.1 Tax and Duties on Domestic Production .................................................................... 42 5.2.2 Central Intelligence Cell (CIC) and Value Added Tax (VAT) Audit Cell of the National Board of Revenue (NBR) ................................................... 42 5.3 Recommendations ............................................................................................................ 42 6 References ................................................................................................................. 46 FIGURES&TABLES Figures: Figure 1: Retail shop in Baitul Mokarrom area selling illegal foreign-brand cigarettes ................... 2 Figure 2: Main land route of Smuggling- Bangladesh’s South-eastern border ................................. 2 Figure 3: A boy smuggling cigarettes from Myanmar’s Maungdaw city to Bangladesh’s Teknaf border ........................................................................................... 2 Figure 4: Myanmarese cigarettes smuggled through Naf River to Teknaf town in Bangladesh ....... 1 Figure 5: Bangladeshi visitors from Myanmar are getting down from the boat ............................... 2 Figure 6: Foreign cigarette brands illegally traded in Bangladesh’s retails shops ............................ 1 Figure 7: Pictures of cigarette packet, made in Myanmar .............................................................. 1 Figure 8: News items on smuggled cigarettes seized at Kamlapur Inland Container terminal in Dhaka .......................................................................................................... 1 Figure 9: Duty-free shops in Dhaka airport. The shopkeepers supply foreign-brand cigarettes to the city markets illegally ............................................................................. 2 Figure 10: A news item on illegal bidi manufacturing in Bangladesh’s different areas ..................... 2 Figure 11: Local, hand-made Patar bidi (leaf-made cigar) and churuts ............................................. 2 TABLES: Table 1: Composition of Tobacco Industry According to Tobacco Products in terms of number of establishments, gross output, employment and fixed asset, 2001-02 ....... 15 Table 2: Observational Estimation of patar-bidi (leaf-rolled bidi) ................................................ 31 Table 3: The sale of churuts (cigar) in the illegal market ............................................................ 32 Table 4: Total amount of smuggled cigarettes sold in Bangladesh .............................................. 32 3 Bangladesh Table 5: Share of Tobacco Taxes in Total Tax Revenue .............................................................. 33 Table 6: Tobacco Tax & Duties – the figure of the year 2005/06 has been taken as the base line figure ...................................................................................................... 34 Table 7: Cigarettes smuggled from Myanmar through Teknaf point ............................................ 35 Table 8: Illegal cigarettes traded in Riaz Uddin wholesale market in Chittagong ........................ 36 Table 9: The volume of wholesale trade in Dhaka city market ................................................... 36 Table 10: Sales of illegal cigar/ churut ......................................................................................... 37 Table 11: Tax and Duty Structure at Import Level ........................................................................ 38 Table 12: Volume of tax and revenue loss due to smuggling of cigarettes .................................... 38 Table 13: Volume of tax loss from the cigar ................................................................................. 39 Table 14: Tax and
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