Kenya lost an estimated Sh47 billion in excise duty and value-added tax revenue to the illicit cigarette trade between 2021 and 2025, according to a study by market research firm Kantar commissioned by British American Tobacco (BAT) Kenya. By 2025, illicit cigarettes accounted for 45.1% of all cigarettes consumed in the country, meaning nearly one in every two cigarettes bypassed official tax channels.
The study defines illicit cigarettes as products on which applicable taxes have not been paid or that do not meet other regulatory requirements. In 2025 alone, the underground market is estimated to have deprived the Kenya Revenue Authority of approximately Sh10.2 billion in excise and VAT.
Scale of the Market and Revenue Loss
The findings show a sharp expansion of the illicit segment. Legal, tax-paid cigarettes held roughly 55% of the market in 2025, down from higher levels earlier in the period. Cross-border smuggling from neighbouring countries with lower excise rates has been identified as a major supply route, with Uganda, Tanzania and South Sudan frequently cited in related reporting.
The cumulative Sh47 billion shortfall is equivalent to the cost of building about 48,000 affordable housing units under the government’s programme, purchasing 19 million bags of subsidised fertiliser, or buying 12 million bags of maize. These comparisons place the lost revenue in the context of current national priorities under the Bottom-Up Economic Transformation Agenda.
Impact on Jobs and the Formal Sector
Beyond government revenue, the growth of the illicit market has affected the legitimate tobacco value chain. Between 2022 and 2025, jobs supported by the formal industry declined by 4,700, while the sector’s contribution to gross domestic product fell by Sh37.7 billion, according to the Kantar estimates.
The study links part of the shift to tax policy. Cigarette excise duty rose by a cumulative 55% between 2018 and 2022. Over the same period, excise revenue collected from compliant manufacturers declined by about Sh1 billion, as price-sensitive consumers moved to cheaper, untaxed products.
Industry and Enforcement Response
BAT Kenya Managing Director Sidney Wafula said the issue extends beyond manufacturers. “When almost half of the cigarette market is illicit, the impact extends well beyond legitimate tobacco businesses,” he noted in comments reported by The Star and other outlets. He called for stronger border controls, faster investigations and prosecutions, deterrent penalties, and an enhanced track-and-trace system to monitor products through the supply chain.
Wafula pointed to South Africa, where illicit cigarettes are estimated to hold about 75% of the market, as a cautionary case. Persistent illicit trade there contributed to the closure of BAT’s sole manufacturing plant in the country, with associated job losses.
For the Kenya Revenue Authority and policymakers, the figures underline the challenge of balancing revenue targets with enforcement capacity. Higher excise rates can raise collections from the legal market in the short term, but large differentials with neighbouring countries create strong incentives for smuggling when border controls and track-and-trace systems are incomplete. Consumers face products that may not meet Kenyan standards, while the formal sector loses volume and employment.
Read also:British American Tobacco Kenya (BAT Kenya) — Corporate Profile, Industrial Area
The study’s numbers are estimates derived from consumption data, duty-paid volumes and market research, and they have been commissioned by an industry participant. Independent verification of the exact illicit share would require broader access to retail audits and border seizure data. Nonetheless, multiple Kenyan outlets have reported the core findings consistently, and the direction of the trend aligns with earlier concerns raised by manufacturers and revenue authorities about cross-border leakage.
Sources
- The Star – Illicit cigarette trade costs Kenya Sh47bn in lost taxes – study
- Capital FM / allAfrica – Illicit Cigarette Trade Costs Kenya Sh47bn in Lost Tax Revenue
- Citizen Digital – Kenya loses Ksh.47B to illicit cigarette trade in five years
- Tobacco Reporter – BAT Kenya Study Finds Tax Losses from Illicits