One in every two cigarette sticks smoked in Kenya is illicit, industry data now shows, underscoring the scale of a black market that is reshaping the country’s tobacco industry.
According to British American Tobacco Kenya, illicit products captured an estimated 47 per cent of total cigarette consumption in 2025, up sharply from 37 per cent in 2024.
The 10-percentage-point surge within a year marks one of the fastest expansions of the underground trade in recent history and translates into an estimated Sh12 billion in annual lost tax revenue, based on prevailing excise rates.
The spike has come at a cost to formal industry players. Although the Nairobi Securities Exchange-listed firm reported a Sh5.2 billion profit after tax for the year ended December 2025, up from Sh4.4 billion the previous year, its group revenue fell 10 per cent to Sh23.2 billion, as legal sales volumes were squeezed by smuggled alternatives.
During an interview with the Star on Friday, BAT Kenya managing director Crispin Achola described the results as “resilient but concerning,” warning that the fast-expanding illicit trade now poses the single biggest threat to both industry players and government tax collections.
According to the firm, illicit cigarettes accounted for an estimated 47 per cent of total consumption in Kenya by the end of 2025, up sharply from 37 per cent in 2024.
The spike translated into significant volume losses for the company, depressing net revenue despite stable pricing and improved cost controls.
“When you take that 47 per cent and apply the applicable tax rates, the government is losing close to Sh12 billion annually,” Achola noted, arguing that the problem extends far beyond corporate performance.
Cigarettes in Kenya attract one of the highest excise regimes in the region. The company estimates that Kenya’s excise burden is roughly double that of some neighbouring countries, creating a tax differential of at least 50 per cent across borders—a gap that smugglers are exploiting.
Most illicit products entering the country are smuggled from Uganda, sometimes rerouted through South Sudan before crossing into Kenya.
Border counties neighbouring Uganda have been hardest hit, with porous entry points and forested terrain offering easy passage for contraband.
The company clarified that counterfeiting is not currently a major concern. Instead, the core challenge lies in large-scale smuggling of genuine products manufactured outside Kenya and brought in without payment of local taxes.
While applauding government enforcement efforts, Achola said interventions have largely focused on downstream distributors and retailers rather than targeting supply chains at higher levels.
“We need enforcement higher up the value chain. If you disrupt supply at source, the downstream dries up quickly,” he said.
The company is urging the formation of a coordinated multi-agency task force comprising police, border control, revenue authorities and anti-counterfeit officials to combat the trade more effectively.
It is also calling for government-to-government engagement between Kenya and source countries to address tax disparities and cross-border enforcement gaps.
The firm further wants stiffer penalties, including asset forfeiture and potential jail terms for offenders, arguing that the scale of losses qualifies as economic sabotage rather than a mere regulatory breach.
Although Kenya slowed the pace of excise increases in recent years—a move welcomed by the company—the shift in late 2024 from a two-tier to a unified excise structure resulted in a marginal tax rise.
Management insists that further excise hikes at a time when illicit trade commands nearly half the market would widen the price gap between legal and illegal products, worsening the problem.
“Excise is a consumption tax. Any further increase will be passed on to consumers and make illicit products even more attractive,” Achola warned, urging government to hold rates steady while enforcement efforts intensify.
Despite revenue contraction, BAT Kenya announced a record dividend payout, funded partly from retained earnings accumulated in previous years.
The board said it sees no immediate large-scale capital investment requirements and opted to return excess cash to shareholders rather than retain it without a clear strategic use.
At the same time, the company continues to invest in local tobacco sourcing, purchasing 5.2 million kilogrammes from about 2,200 contracted farmers in 2025.
Increasing the share of locally sourced leaf, which accounts for about 40 per cent of input costs, has been central to its cost-efficiency drive.
Beyond enforcement debates, BAT Kenya is accelerating investment in non-combustible nicotine products under its tobacco harm reduction strategy.
Marketing expenditure is currently split evenly between traditional combustible cigarettes and newer “modern oral” nicotine pouches, which the company says eliminate combustion—the primary source of harmful toxins in cigarettes.
The firm acknowledged that legislative support for harm-reduction products remains slow, but cited recent differentiated health warnings from the Ministry of Health as evidence of gradual policy recognition of scientific distinctions between combustible and non-combustible products.
On sustainability, BAT Kenya says it is planting about two million trees annually, expanding rooftop solar installations and recycling roughly half of its water usage.
Looking ahead to 2026, management remains cautiously optimistic, citing rising cigarette seizure volumes as early signs of enforcement progress. However, executives stress that without stronger cross-border cooperation and tougher penalties, illicit trade could continue eroding both corporate revenues and billions in public tax income.
