BAT Kenya Study Finds Illicit Cigarette Trade Costs KSh47bn in Lost Revenue

New research commissioned by British American Tobacco (BAT) Kenya and carried out by Kantar estimates that Kenya lost KSh47 billion in excise duty and VAT revenue to illicit cigarettes between 2021 and 2025.

The study calculates that illicit cigarettes represented 45.1 per cent of total cigarette consumption in 2025, meaning almost one in two cigarettes were untaxed.

Illicit cigarettes are defined as products on which applicable taxes have not been paid and that do not meet other regulatory requirements.

BAT Kenya noted that the illicit market is now approaching parity with the legal market.

The cumulative tax loss could have financed about 48,000 low-cost houses, 19 million bags of subsidised fertiliser or 12 million bags of maize under the Government’s Bottom-Up Economic Transformation Agenda.

A 55 per cent increase in cigarette excise duty between 2018 and 2022 coincided with a KSh1 billion decline in excise revenue from the legal industry over the same period.

Employment across the formal tobacco value chain fell by 4,700 jobs between 2022 and 2025, and total employment dropped from roughly 80,000 to 75,000 people.

The sector’s contribution to gross domestic product declined by KSh37.7 billion during the same timeframe.

Capital Business reported that the annual loss of excise duty and VAT is estimated at KSh10.2 billion, with a cumulative five-year loss of KSh37 billion.

The study identifies Uganda as the leading source of illicit cigarette supplies entering Kenya, followed by Tanzania and South Sudan, driven by tax differentials: Kenya charges KSh4,100 per 1,000 cigarettes, compared with KSh1,974 in Uganda, KSh1,874 in Tanzania and KSh1,200 in South Sudan.

Managing Director Sidney Wafula said the legally taxed share fell from 66 per cent in 2021 to 55 per cent in 2025, an 11-point drop, and called for more predictable excise tax policies, sustained enforcement and stronger border controls. He warned, “If left unchecked, Kenya risks the trajectory seen in South Africa, where illicit cigarettes account for around three of every four cigarettes sold (~75 per cent).”