BAT Kenya: Illegal Cigarette Trade Losses Hit Sh10.2 Billion Annually

• Kenya faces an estimated annual loss of Sh10.2 billion in excise duty and VAT revenue due to illicit cigarette trading.
• A Kantar study commissioned by BAT Kenya revealed that 45 percent of cigarettes consumed in Kenya in 2025 were untaxed.
• The cumulative tax loss over the last five years from this illicit trade amounts to Sh37 billion.
• Significant disparities in excise duty rates among East African Community nations, coupled with porous borders, fuel cross-border cigarette smuggling into Kenya.
• Employment within Kenya's formal tobacco value chain decreased from 80,000 in 2022 to 75,000 in 2025, reflecting the impact of the illicit market.

Kenya is grappling with substantial annual financial losses, estimated at Sh10.2 billion, stemming from the illicit trade in cigarettes.

Kenya is grappling with substantial annual financial losses, estimated at Sh10.2 billion, stemming from the illicit trade in cigarettes. This figure encompasses both excise duty and Value Added Tax (VAT) revenue that the government fails to collect. A recent industry analysis, commissioned by British American Tobacco (BAT) Kenya and independently executed by the research firm Kantar, highlights the alarming scale of this issue. The study reveals that nearly half of all cigarettes consumed within the country in 2025, specifically 45 percent, were untaxed, leaving legally compliant products with a 55 percent market share.

The financial implications extend beyond annual figures, with the cumulative tax loss over the past five years reaching an estimated Sh37 billion. Sidney Wafula, the Managing Director for BAT Kenya, noted a significant shift in the market landscape, observing an 11 percentage point decline in the share of legally taxed cigarettes. This share decreased from 66 percent in 2021 to 55 percent in 2025, underscoring the rapid expansion of the Kenya illicit tobacco market and the resulting BAT Kenya illegal cigarette trade losses. This trend raises serious concerns about the sustainability of government revenue and the integrity of the formal tobacco industry.

The primary catalyst for this widespread illicit trade is identified as cross-border smuggling, with Uganda serving as the leading source of untaxed cigarette supplies entering Kenya. Tanzania and South Sudan also contribute significantly to this East African cigarette smuggling network. A key factor enabling this trade is the considerable disparity in excise duty rates across the East African Community (EAC) member states. For instance, Kenya levies an excise duty of Sh4,100 per 1,000 cigarettes, which translates to Sh82 per pack of 20. In stark contrast, Uganda's rate is Sh1,974, Tanzania's is Sh1,874, and South Sudan's is as low as Sh1,200 for the same quantity.

These substantial tax differentials create a powerful economic incentive for illicit traders to introduce cheaper, untaxed products into the Kenyan market. This situation is further exacerbated by porous national borders, the diversion of transit consignments, and existing gaps in enforcement mechanisms. Additionally, consumer affordability pressures play a crucial role; as excise taxes increase, leading to higher retail prices for legal products, price-sensitive smokers are often driven towards more affordable, albeit illicit, alternatives.

The expansion of the Kenya illicit tobacco market has tangible negative consequences for the nation's economy and its workforce. The formal tobacco value chain has experienced a reduction in employment, with the number of individuals supported declining from approximately 80,000 in 2022 to 75,000 in 2025. This contraction highlights the broader impact of the BAT Kenya illegal cigarette trade losses on legitimate businesses and job creation.

BAT Kenya's Managing Director, Sidney Wafula, pointed out that successive increases in excise duty between 2018 and 2022, which collectively raised the tax burden by 55 percent, coincided directly with a decrease in legal cigarette volumes and a corresponding drop in government tax collections. In response to these challenges, Wafula advocated for the implementation of more predictable excise tax policies. He also emphasized the critical need for sustained enforcement efforts, enhanced border controls, and robust measures designed to prevent the diversion of transit consignments, all of which are essential to curb the significant Kenya excise duty revenue loss and Kenya VAT revenue illicit trade.

This report signals potential for increased regulatory enforcement and legislative changes in Kenya regarding excise duties, border controls, and anti-smuggling measures. Lawyers advising clients in the tobacco, logistics, or retail sectors should prepare for heightened scrutiny and review compliance frameworks to mitigate risks associated with illicit trade, particularly concerning cross-border operations and tax differentials within the EAC.

Source: Original reporting via Capital FM