The widening tax disparities on tobacco excise taxes across the region are fuelling cigarette smuggling as traders exploit lower taxes in neighbouring countries.
This is now risking Kenya’s push to raise taxes on tobacco products and will deprive governments of revenue and undermine public health efforts, according to consumer protection organisations in Kenya.
The National Taxpayers Association and Kenya Tobacco and Nicotine Tax Coalition are now pushing for East African countries to harmonise tobacco taxes, warning that large differences in excise duties across borders are encouraging illicit cigarette trade.
The lobby groups now say Kenya’s planned tobacco tax increases will be weakened by cross-border arbitrage, where traders tend to exploit lower taxes in neighbouring countries to move cheaper tobacco products into higher-tax markets illegally.
“Without regional tax harmonisation, illicit trade will continue to thrive because smugglers will always follow the lowest-tax route,” said NTA CEO Patrick Nyangweso.
The push comes as Kenya considers one of the most aggressive tobacco tax reform proposals in recent years.
As lawmakers intensify debates on the Finance Bill 2026 and the Tobacco Control (Amendment) Bill 2024, the consumer protection groups want a coordinated East African Community (EAC) approach to tobacco taxation.
This will involve Uganda, Tanzania, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo.
The NTA wants the excise tax on cigarettes increased from the current Sh4,100 per 1,000 cigarettes by 30 per cent annually for the next five years, eventually reaching about Sh15,124 per mille by 2029.
The association also wants all tobacco taxes automatically indexed to inflation and income growth to prevent erosion of their real value over time.
“Despite the 2024 uniform excise rate of Sh 4,100 per mille, the Tobacсo economics Scorecard fell to 1/5 in 2024 – the lowest since 2018, reflecting the erosion from frozen inflation adjustments and inadequate tax share,” said Nyangweso.
Kenya currently taxes tobacco at about 30.6 per cent of retail price, far below the World Health Organization’s recommended threshold of 75 per cent.
The tax lobby argues that stronger taxation remains one of the most effective tools for reducing smoking rates while simultaneously boosting government revenue.
Industry data by the associations show that tobacco use causes an estimated 12,000 deaths in Kenya annually and contributes heavily to rising cases of cancer, cardiovascular disease and chronic respiratory illnesses.
They argue that the economic burden is equally severe. In 2021 alone, tobacco use was estimated to cost the Kenyan economy between $544.4 million (Sh70.5 billion) and $756.2 million (Sh97.9 billion) annually through healthcare costs, lost productivity and reduced household income.
Kenya remains one of the region’s largest tobacco markets, while tobacco farming continues to support thousands of households in Migori, Homa Bay, Bungoma and Kisumu counties.
The NTA is now proposing the creation of a dedicated Tobacco Transition Fund financed through one per cent of annual tobacco excise revenues to help farmers diversify into alternative crops such as sunflower, soya, sorghum and horticulture.
The proposed fund would support extension services, certified seeds, cold chain infrastructure and market linkages over a five-year transition programme.
For former Migori tobacco farmer Judith Atieno, crop diversification became a necessity after years of unstable earnings.
“Tobacco farming looked profitable on paper, but the deductions were too many,” she said. “You would wait months for payment and remain in debt.”
She eventually switched to growing vegetables and groundnuts through a county-supported cooperative.
Still, the illicit tobacco trade remains one of the biggest threats to both revenue collection and public health goals.
The NTA says Kenya must fully operationalise the Excisable Goods Management System (EGMS) across all tobacco entry points and manufacturing facilities while creating a dedicated multi-agency illicit tobacco task force involving the Kenya Revenue Authority, police and Anti-Counterfeit Authority.
The association is also urging Kenya and its EAC partners to implement provisions under the WHO Protocol to Eliminate Illicit Trade in Tobacco Products.
Countries that have ratified and actively enforced the protocol, the report says, have recorded reductions in smuggling and stronger revenue performance despite higher excise taxes.
Industry players have long argued that sharp tax increases risk expanding the illicit cigarette market by making legal products unaffordable.
But public health advocates dispute that narrative, saying weak enforcement and fragmented regional tax structures — not taxation itself — are the real drivers of smuggling.
The debate comes as East Africa witnesses rapid growth in novel nicotine products, including e-cigarettes and nicotine pouches, particularly among young consumers.
The NTA warns that these products remain significantly under-taxed, with some taxed at only 10 to 50 per cent of cigarette-equivalent levels.
The association wants taxes on these products raised to parity with traditional cigarettes to close what it calls an “affordability gap,” driving youth adoption.
The Tobacco Control (Amendment) Bill 2024, sponsored by nominated Senator Catherine Mumma, seeks to expand the legal definition of tobacco products to include emerging nicotine products while extending advertising restrictions and mandatory health warnings.
The lobby group says the legislation represents a pivotal moment for Kenya’s public health and fiscal policy.
“Kenya stands at a crossroads. Novel nicotine products are surging, youth exposure is increasing, illicit trade is at record levels, and the country faces a fiscal deficit requiring domestic revenue mobilisation,” NTA stated.
It is further proposing stricter regulation of tobacco marketing, including banning nicotine advertising on social media platforms and restricting influencer promotions targeting audiences under 25 years.
“Single-stick cigarette sales, which remain widespread despite existing restrictions, should also be banned immediately, the association says,” the lobby groups said in a statement.
At the same time, the lobby wants greater transparency in how tobacco-related revenues are spent.
It is calling for at least five per cent of tobacco excise revenues, estimated at around Sh780 million annually, to be ring-fenced for the Tobacco Control Fund to support cancer treatment infrastructure, smoking cessation services, and health promotion campaigns.
Part of the money, the association proposes, should finance three new regional cancer treatment and radiotherapy centres in Kisumu, Mombasa and Nakuru.
The report also revives scrutiny around the long-delayed Solatium Compensation Fund, which was established under Kenya’s tobacco control laws to support rehabilitation and public health programmes.
The NTA now wants all tobacco manufacturers and importers to be compelled to immediately begin paying the mandatory two per cent Solatium contribution under penalties for non-compliance.
