Kenya lost an estimated Sh10.2 billion ($78.5 million) in annual excise duty and VAT revenue to illicit cigarette trading, according to a study commissioned by British American Tobacco (BAT) Kenya and conducted by the global research firm Kantar.
Illicit cigarettes made up 45 percent of the Kenyan market in 2025. Nearly one in every two cigarettes consumed was not duty paid. The findings, released on November 5, 2026, show a steep decline. Legal products lost 11 percentage points of market share between 2021 and 2025, falling from 66 percent to 55 percent.
Smuggling Fueled by Tax Gaps
Uganda is the leading source of illicit cigarettes entering Kenya, followed by Tanzania and South Sudan. The study points to stark differences in excise duty rates across East African Community markets. Kenya charges Sh4,100 ($31.57) per 1,000 cigarettes. Uganda charges Sh1,974 ($15.20). Tanzania charges Sh1,874 ($14.43). South Sudan charges Sh1,200 ($9.24).
These tax differentials create an incentive for smugglers. Porous borders and enforcement gaps allow cheaper, untaxed products into Kenya. The study also notes a cumulative 55 percent increase in cigarette excise duty between 2018 and 2022. This raised the tax burden significantly. It coincided with declining legal cigarette volumes and lower government collections from the legal industry.
Billions Lost and Jobs Vanish
Kenya’s cumulative tax loss from illicit cigarette trade from 2021 to 2025 amounts to Sh37 billion ($284.9 million). The report highlights what that lost revenue could have financed. It could have built about 48,000 affordable housing units. Or it could have bought 19 million bags of subsidised fertiliser under the Bottom-Up Economic Transformation Agenda (BETA).
The expansion of the illicit market has hurt the formal tobacco industry. Employment supported by the legal tobacco value chain fell from 80,000 people in 2022 to 75,000 in 2025. The industry’s contribution to Kenya’s Gross Domestic Product (GDP) dropped by KSh 37.7 billion during the same period.
When you look at the market, what it tells you is that nearly one in two cigarettes consumed in the Kenyan market in 2025 was not duty paid,
Sidney Wafula, BAT Kenya Managing Director
Business Warns of Growing Crisis
BAT Kenya Managing Director Sidney Wafula warned the growing illicit market is undermining legitimate businesses. It is also depriving the government of critical revenue. The consequences go beyond the tobacco industry, he argued. Lost revenue could pressure the government to raise taxes or borrow more to fund essential public services. Wafula also warned the illicit trade fuels organised crime. It exposes consumers to products outside regulatory controls.
He compared Kenya’s situation to South Africa. Illicit cigarettes account for about 75 percent of the market there. Wafula warned Kenya could follow a similar trajectory if the problem is not addressed. He cited the closure of BAT South Africa’s only manufacturing facility as an example of the potential consequences.
To address the challenge, Wafula called for stronger enforcement. This includes enhanced border controls. He also called for expedited investigations and prosecutions of illicit trade offences. Penalties must deter criminal networks, he said. He advocated for a track-and-trace system to strengthen oversight of the tobacco supply chain.
The estimated annual excise duty and VAT revenue loss stands at Sh10.2 billion, while the cumulative tax loss over the last five years amounts to Sh37 billion.
Sidney Wafula, BAT Kenya Managing Director
Wafula acknowledged ongoing government efforts to combat illicit trade. He stressed that sustained enforcement is necessary to reverse the illegal market’s growth. He reaffirmed BAT Kenya’s commitment to working with agencies to tackle the problem. The goal is to protect legitimate businesses and safeguard government revenue.
