BAT study puts annual losses from illegal cigarette trade at Sh10.2bn

NAIROBI, Kenya, Nov 5 – Kenya is losing an estimated Sh10.2 billion annually in excise duty and Value Added Tax (VAT) revenue to illicit cigarette trading, with nearly one in every two cigarettes consumed in the country escaping taxation, according to a new industry study. The findings, commissioned by British American Tobacco (BAT) Kenya and independently conducted by research firm Kantar, indicate that illicit cigarettes accounted for 45 percent of the Kenyan market in 2025, leaving legally taxed products with a 55 percent share. The growing illicit market is raising concerns over lost government revenue, weakening of the formal tobacco industry and the effectiveness of tax and border enforcement measures, as cheaper untaxed products gain ground among increasingly price-sensitive consumers. BAT Kenya Managing Director Sidney Wafula said the country had experienced a significant shift in market composition, with the share of legally taxed cigarettes declining by 11 percentage points between 2021 and 2025, from 66 percent to 55 percent. “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,” he said. “The estimated annual excise duty and VAT revenue loss stands at Sh10.2 billion, while the cumulative tax loss over the last five years amounts to Sh37 billion.” The study identifies Uganda as the leading source of illicit cigarette supplies entering Kenya, followed by Tanzania and South Sudan, with differences in excise duty rates across East African Community markets creating incentives for cross-border smuggling. Kenya charges Sh4,100 in excise duty per 1,000 cigarettes, equivalent to Sh82 per pack of 20, compared to Sh1,974 in Uganda, Sh1,874 in Tanzania and Sh1,200 in South Sudan. The tax differential, coupled with porous borders, the dumping of transit consignments and enforcement gaps, has created opportunities for illicit traders to supply cheaper products into the Kenyan market. Consumer affordability pressures have also contributed to the shift, as higher excise taxes increase retail prices, potentially pushing price-sensitive smokers towards cheaper untaxed alternatives. Wafula said successive increases in excise duty between 2018 and 2022, which raised the tax burden by 55 percent, coincided with declining legal cigarette volumes and government collections. He called for more predictable excise tax policies alongside sustained enforcement, stronger border controls and measures to prevent the diversion of transit consignments. The findings further show that employment supported across the formal tobacco value chain declined from approximately 80,000 people in 2022 to 75,000 in 2025.