KENYA lost an estimated Sh47 billion in excise duty and value added tax (VAT) revenue to illicit cigarette trade between 2021 and 2025, a new study by global research firm Kantar shows.
The amount is equivalent to the construction of about 48,000 low-cost houses under the affordable housing programme, the purchase of 19 million bags of subsidised fertiliser to support farmers, or 12 million bags of maize to boost food security.
This, as nearly half of cigarettes consumed in the country evaded taxes.
The study, commissioned by British American Tobacco Kenya (BAT Kenya), estimates that illicit cigarettes accounted for 45.1 percent of total cigarette consumption in 2025, meaning almost one in every two cigarettes sold in the country was illegal.
The findings raise concerns over the effectiveness of tax policies and enforcement measures in curbing the growing illicit market, which is increasingly competing with the regulated cigarette industry.
Illicit cigarettes are defined as products on which applicable taxes have not been paid and which fail to comply with other regulatory requirements.
According to the research, the Sh47 billion in lost excise duty and VAT revenue over the five-year period could have financed significant investments under the Government’s Bottom-Up Economic Transformation Agenda (BETA).
The findings come amid mounting pressure on the government to expand its revenue collection base while financing public infrastructure and social programmes.
The study also highlights the relationship between taxation and the performance of the legal cigarette industry, pointing to a 55 percent cumulative increase in cigarette excise duty between 2018 and 2022.
Over the same period, excise revenue collected from the legal cigarette industry declined by Sh1 billion, raising questions about whether higher taxes are encouraging consumers to shift towards cheaper illicit products.
The research further shows that the expansion of illicit trade has weighed on employment and economic activity across the legal tobacco value chain.
Between 2022 and 2025, the number of jobs supported by the legal industry declined by 4,700, while its contribution to gross domestic product (GDP) fell by Sh37.7 billion, according to Kantar.
BAT Kenya managing director Sidney Wafula said the growing illicit market was no longer an issue confined to legitimate tobacco manufacturers, but one with wider implications for government revenue and public safety.
“The surge in the illicit cigarette trade in Kenya is deeply concerning, and this study confirms a trend that has worsened in recent years. This is not simply a tobacco industry problem. When almost half of the cigarette market is illicit, the impact extends well beyond legitimate tobacco businesses,” Wafula said.
He added that the loss of tax revenue could place additional pressure on ordinary Kenyans through higher taxes or increased government borrowing to finance public services.
“The illicit cigarette trade also fuels organised crime and exposes consumers to cigarettes that fall outside established regulatory controls,” he said.
Wafula warned that Kenya could follow the trajectory of South Africa, where illicit cigarettes account for an estimated 75 percent of the market.
He cited the closure of BAT South Africa’s only manufacturing plant, announced amid persistent illicit trade, as a warning of the potential consequences for local manufacturing and employment.
BAT Kenya called for stronger enforcement, tighter border controls and the disruption of criminal networks involved in the supply and distribution of illegal cigarettes.
The company also advocates for a robust track-and-trace system to improve oversight of tobacco products across the supply chain, alongside faster investigations and prosecutions and penalties capable of deterring offenders.
“We welcome various enforcement efforts by government agencies fighting illicit trade. However, the scale of the problem requires sustained action,” Wafula said.
The company said it remained committed to working with regulators and enforcement agencies to protect legitimate businesses and safeguard government revenue.
BAT Kenya, which began operations in the country in 1907, is listed on the Nairobi Securities Exchange and operates a manufacturing plant in Nairobi and a green leaf threshing plant in Thika.
The company exports more than 75 percent of its Nairobi factory output to nine African countries, positioning Kenya as a manufacturing hub within the wider BAT Group.
Its tobacco-growing operations involve about 2,200 contracted farmers in Homa Bay, Migori, Busia, Bungoma, Meru and Tharaka Nithi counties.
The firm’s alue chain supports more than 75,000 Kenyans through farming, manufacturing, distribution, retail, wholesale trade, transport and logistics.
The company also says it has paid more than Sh90 billion in taxes to the government over the past five years.
