BAT Kenya losing market share, blames counterfeit cigarettes

By Victor MUJIDU

Illicit sale of cigarettes ate about 25.5 per cent of the market share in 2022 compared to 11.3 per cent a year before – denying the taxman billions tax earnings, according to British American Tobacco (BAT) Kenya.

The Nairobi Securities Exchange – NSE listed firm revealed in its report that as a result of the illegal trade, the Kenya Revenue Authority (KRA) lost in excess of KES 6.5 billion last year in taxes, an increase of 62.5 per cent compared to KES 4 billion of 2021.

“This shrinkage of legitimate market] has been further exacerbated by the resultant differentials in excise rates between Kenya and its neighboring EAC partner States, with the excise payable in Kenya being double that of Uganda and almost triple that of Tanzania,” BAT Kenya wrote in its annual report for the year ended December.

“To address this dire situation, we continue to call upon the government to enhance local deployment of resources and enforcement, as well as collaboration with neighboring governments against the illicit trade in tobacco products.”

The manufacturer further revealed that the share of illicit trade in cigarettes has more than doubled in three years, causing a tax deprivation in neighboring countries and tax enforcement at border points.

The Kenya Kwanza Government spared cigarettes from tax in the financial act 2023, marking the first time in five years that the product not included in the revenue contribution plan.

Conversely, illicit alcohols have been recently seen their prices are un adjustable, meaning that their consumption would not be hit by cost movements, and hence, making them the easy targets for tax raids.

The lift on the taxes for the products was as a result of intensified decry from the local manufacturers who claimed that the high rising of taxes would hamper their business and further causing spike in illegal trade.

As a result of the tax freezing, BAT among other firms expressed relief after authorities further removed the annual increase of excise duty for inflation that had been in force since 2018.

“Effectively, in 2022 alone, excise duty has increased by 21.3 percent, and cumulatively by over 50 percent since July 2019. Such an increase which is ahead of the average inflation rate for the year presents an unstable and unpredictable business environment,” BAT writes in the report.