Kenya loses Ksh.47B to illicit cigarette trade in five years – study

Kenya lost an estimated Ksh47 billion in excise duty and Value Added Tax (VAT) revenue between 2021 and 2025 due to illicit cigarette trading, with illegal products accounting for nearly half of the country's cigarette market last year, a new study has revealed.

The research conducted by global research firm Kantar estimates that illicit cigarettes accounted for 45.1 per cent of total cigarette consumption in Kenya in 2025, meaning nearly one in every two cigarettes consumed in the country was illicit.

The study, commissioned by BAT Kenya, defines illicit cigarettes as products on which applicable taxes have not been paid and which fail to comply with other regulatory requirements.

According to the findings, the estimated KSh 47 billion in lost tax revenue over the five-year period could have financed critical government programmes under the Bottom-Up Economic Transformation Agenda (BETA).

The amount could have supported the construction of approximately 48,000 affordable housing units, purchased 19 million bags of subsidised fertiliser or financed the purchase of 12 million bags of maize to support food security.

The report also highlights the relationship between cigarette taxation and government revenue, noting that a cumulative 55 per cent increase in cigarette excise duty between 2018 and 2022 coincided with a KSh 1 billion decline in excise revenue collected from the legal cigarette industry over the same period.

Beyond the loss of government revenue, the expansion of illicit cigarette trading has also affected employment and the economic contribution of legitimate tobacco businesses.

Between 2022 and 2025, the number of jobs supported across the legal tobacco value chain declined by 4,700, while the industry's contribution to Kenya's Gross Domestic Product (GDP) fell by KSh 37.7 billion, according to the study.

Commenting on the findings, BAT Kenya Managing Director Sidney Wafula said the growing illicit cigarette market was increasingly undermining legitimate businesses while depriving the government of critical revenue.

Wafula warned that the consequences extended beyond the tobacco industry, arguing that lost tax revenue could place additional pressure on the government to increase taxes or borrow to finance essential public services.

“Ordinary Kenyans ultimately bear the cost through greater pressure on Government to raise taxes or borrow more to fund essential public services. The illicit cigarette trade also fuels organised crime and exposes consumers to cigarettes that fall outside established regulatory controls," said Wafula.

He also cautioned that the trade fuels organised crime and exposes consumers to products operating outside established regulatory controls.

Wafula drew comparisons with South Africa, where illicit cigarettes account for approximately 75 per cent of the market, warning that Kenya could follow a similar trajectory if the problem is not addressed.

He cited the closure of BAT South Africa's only manufacturing facility as an example of the potential consequences of sustained illicit trade, which he said had undermined the commercial viability of legitimate local manufacturing and placed jobs at risk.

To address the challenge, Wafula called for stronger enforcement measures, including enhanced border controls, expedited investigations and prosecutions of illicit trade offences, and penalties that would deter criminal networks.

He further advocated for a robust track-and-trace system to strengthen oversight of tobacco products throughout the supply chain.

While acknowledging ongoing efforts by government agencies to combat illicit trade, Wafula said sustained enforcement was necessary to reverse the growth of the illegal market.

He reaffirmed BAT Kenya's commitment to working with regulatory and enforcement agencies to tackle illicit trade, protect legitimate businesses and safeguard government revenue.