Illicit cigarette trade cost Kenya Sh47b in five years

Kenya’s formal manufacturing and economic landscape continues to suffer heavy financial blows from the proliferation of contraband products, with illicit cigarettes accounting for a staggering Sh47 billion in lost revenue.

According to an independent research report released by Kantar Insights and commissioned by British American Tobacco (BAT) Kenya, the underground trade has triggered a massive revenue haemorrhage, denying the exchequer approximately Sh10.2 billion in unpaid excise duty and value added tax (VAT) in 2025 alone.

The report highlights how unregulated cross-border smuggling and fiscal policy imbalances threaten lawful industrial operations, agricultural supply chains, and employment across the region.

Out of all cigarettes consumed in the Kenyan market during 2025, only 55 per cent were compliant, with duty-paid products contributing Sh13.2 billion in core taxes.

The remaining 45 per cent, translating to roughly one in every two cigarettes smoked, bypassed statutory tax frameworks entirely.

BAT Kenya Managing Director Sidney Wafula, pointed out that this widespread evasion has severe ripple effects across the country's economic fabric.

"When you look at the market, what it tells you is that nearly one in two cigarettes consumed in the Kenyan market in 2025 was not duty paid," noted Mr. Wafula.

It is estimated that between 2021 and 2025, cumulative tax evasion has cost the government upwards of Sh 47 billion. Consequently, industry metrics indicate that such lost revenue could have alternatively funded massive public development projects, including the construction of 48,000 low-cost housing units, the procurement of 19 million 50kg bags of subsidized fertilizer, or the expansion of national strategic food reserves.

Furthermore, the legitimate sector's decline has directly impacted livelihoods meaning that the total employment supported across BAT’s local value chain dropped from approximately 80,000 people in 2022 to 75,000 in 2025, squeezing thousands of contracted farmers and direct workers. Additionally, the report noted that the industry's contribution to gross domestic product declined by Sh 37.7 billion in the same period.

The study identifies porous borders, transit dumping, and significant excise duty differentials among East African Community (EAC) member states as primary drivers of illicit trade and potential counter-investments. While Kenya maintains a high excise duty regime (levying Sh 4,100 per 1,000 cigarettes), neighbouring markets feature significantly lower rates, creating a lucrative arbitrage window for smugglers.

In response, BAT proposed a specialized multi-agency task force that enhances cooperation among customs, police, and anti-counterfeit authorities to disrupt illicit transit networks. This initiative is supported by faster prosecutions and increased penalties, altering the risk-benefit analysis for criminal organizations. Additionally, maintaining stable excise duty levels helps avoid price fluctuations that could push consumers toward cheaper, illegal market options, thus safeguarding legitimate businesses and tax revenues.

While drawing lessons from regional peers like Ghana—which successfully reduced its illicit incidence down to 11 per cent through aggressive law enforcement coordination—industry stakeholders emphasized that policy frameworks must be matched by unyielding operational policing.

Speaking during the release, Simon Githuku, deputy head of policy and regulation at the Kenya Association of Manufacturers (KAM), underscored the critical necessity of evidence-based advocacy in safeguarding local industries to highlight the government's position on policy, control and its involvement. He noted that combating illicit trade remains a top priority for manufacturers, typing directly into ongoing high-level dialogues under the Office of the President and the State Department for Trade.

"KAM will champion fact-based advocacy, and this study will be very useful as a priority. It is one of the priorities for the Kenya Association of Manufacturers in terms of policy advocacy," affirmed Dr Gituku.

While legislative measures and multi-agency roundtables including those engaging the Kenya Revenue Authority (KRA) and the Anti-Counterfeit Authority (ACA), have made strides in reviewing regulatory fee burdens, absolute success requires rigorous enforcement at entry points. Manufacturers stressed that protecting legitimate businesses requires sustained tracking, trace mechanisms, and strict alignment across all East African trade corridors to secure government revenue and foster sustainable economic growth.