BAT Kenya has raised fresh concerns over the continued penetration of illicit cigarettes into the local market, warning that the trade is denying the government an estimated Sh12 billion in annual tax revenue.
This is also threatening thousands of jobs and undermining the sustainability of the country’s tobacco industry.
The cigarette manufacturer said illicit tobacco products now account for about 45 per cent of Kenya’s cigarette market, making them the single biggest challenge facing the legal tobacco business despite increased enforcement efforts by government agencies.
Speaking during an interview with the Star on Friday, after the release of the company’s half-year financial results, BAT Kenya managing director Sidney Wafula said the growth of untaxed cigarettes is hurting legitimate manufacturers.
This, he said, is reducing government revenues and putting at risk an industry that supports about 80,000 livelihoods across farming, manufacturing, distribution and retail.
“The continued rise in illicit cigarette trade remains the most significant threat to the sustainability of the legitimate industry and its value chains,” Wafula said.
He noted that while authorities have stepped up crackdowns on smuggled cigarettes, more sustained and coordinated enforcement is needed to reverse the trend.
“We are seeing encouraging signs from government through increased enforcement, but it needs to be sustained and significantly scaled up. That is what will make the difference,” he said.
According to BAT, illegal cigarettes evade excise duty and other taxes, allowing smugglers to sell products at prices below those offered by compliant manufacturers.
The company estimates that the illicit trade is costing the Exchequer around Sh12 billion annually in lost tax revenue that could otherwise support public services and development projects.
Wafula said the influx of untaxed products has also accelerated consumer down-trading as households grapple with reduced purchasing power.
“Consumers are increasingly choosing cheaper products because of affordability pressures. The challenge is that illicit products are able to undercut legal manufacturers since they do not pay taxes,” he said.
BAT identified porous borders, particularly with Uganda, as one of the main entry points for illegal cigarettes and called for tighter border controls and stronger enforcement against smugglers.
Beyond revenue losses, the company warned that continued market distortion could undermine Kenya’s position as a regional manufacturing hub.
Wafula argued that Kenya can attract more manufacturing investment by maintaining predictable tax policies, reducing regulatory uncertainty and strengthening enforcement against illicit trade.
“When companies are making investment decisions over five to 15 years, they need certainty. Frequent regulatory and tax changes make long-term planning difficult,” he said.
He also urged the government to simplify regulations and reduce bureaucracy while consistently enforcing existing laws.
Despite the difficult operating environment, BAT Kenya reported resilient financial results for the six months ended June 30, supported by stronger exports and growth in its modern oral nicotine pouch business.
Net revenue rose five per cent to Sh12.3 billion, driven by recovery in export sales and increased demand for nicotine pouches following their launch last year.
Operating profit increased one per cent to Sh4.3 billion, while profit before tax rose two per cent to Sh4.4 billion, helped by revenue growth, productivity improvements and higher finance income.
The company, however, faced a seven per cent increase in operating costs to Sh8 billion, reflecting higher input costs and additional spending to comply with graphic health warning regulations.
Looking ahead, BAT said it remains cautiously optimistic, citing improving cooperation with government on combating illicit trade and continued growth in reduced-risk products.
The company aims to increase modern oral nicotine products to between 15 and 20 per cent of total revenue over the medium term and continues to advocate for evidence-based regulation that distinguishes reduced-risk nicotine products from traditional combustible cigarettes.
BAT’s board declared an interim dividend of Sh10 per share, signalling confidence in the company’s financial position despite the increasingly challenging business environment.
