Kenya's growing illegal cigarette business has deprived the government of Sh47 billion in potential tax revenue in just five years, with nearly half of all cigarettes consumed in the country now coming from the illicit market, a new study has revealed.
Research conducted by global research firm Kantar estimates that the government lost Sh47 billion in excise duty and Value Added Tax (VAT) between 2021 and 2025 due to the circulation of cigarettes traded outside the country's tax and regulatory framework.
The scale of the losses is highlighted by what the money could have achieved in the economy. According to the report, the amount would have been enough to construct approximately 48,000 affordable housing units, purchase 19 million bags of subsidised fertiliser for farmers or finance the acquisition of 12 million bags of maize to strengthen food security.
The findings come as illicit products continue to take up a substantial share of Kenya's cigarette market, raising concerns about the impact of illegal trading on government revenue, legitimate manufacturers and employment.
The study, commissioned by British American Tobacco Kenya (BAT Kenya), puts the share of illicit cigarettes at 45.1 per cent of total consumption in 2025. This means that almost one in every two cigarettes consumed in the country was illegal.
Kantar defines illicit cigarettes as products sold without payment of applicable taxes or those that fail to meet other regulatory requirements.
The report notes that the Sh47 billion lost over the five-year period could have supported major investments under the Government's Bottom-Up Economic Transformation Agenda (BETA), at a time when the State is under pressure to increase revenue collection while meeting its infrastructure and social development commitments.
It also examines how changes in cigarette taxation have affected the performance of the legal industry, highlighting a 55 per cent cumulative increase in excise duty between 2018 and 2022.
Despite the higher tax rates, excise revenue collected from the legitimate cigarette industry fell by Sh1 billion over the same period. The report raises concerns that increasing the tax burden could be pushing some consumers towards cheaper illegal alternatives, although the figures alone do not establish the cause of the decline.
The consequences of the growing illicit market have also extended to jobs and the industry's contribution to the wider economy.
Kantar estimates that employment supported by the legal tobacco value chain declined by 4,700 jobs between 2022 and 2025. During the same period, the industry's contribution to Kenya's Gross Domestic Product (GDP) dropped by Sh37.7 billion.
BAT Kenya Managing Director Sidney Wafula said the expansion of illegal cigarette trading had become a wider economic and public safety concern rather than a problem affecting manufacturers alone.
“The surge in the illicit cigarette trade in Kenya is deeply concerning, and this study confirms a trend that has worsened in recent year,” Wafula said.
He warned that the continued growth of the illegal market was undermining legitimate businesses while denying the government resources that could be directed towards essential public services.
Wafula also cautioned that ordinary Kenyans could ultimately face the consequences of declining tax collections through increased government borrowing or pressure to raise taxes to bridge the revenue gap.
He further raised concerns that illicit cigarette trading was creating opportunities for organised criminal networks while exposing consumers to products that operate outside established regulatory controls.
The BAT Kenya chief also pointed to South Africa, where illicit cigarettes account for approximately 75 per cent of the market, warning that Kenya could experience a similar situation if the problem is not addressed.
He cited the closure of BAT South Africa's only manufacturing facility as an example of the damage illegal trading could cause to legitimate local manufacturing, business operations and employment.
To contain the problem, Wafula called for stronger border controls, faster investigations and prosecutions of those involved in illicit cigarette trading, as well as tougher penalties to discourage criminal networks.
He also proposed the introduction of a comprehensive track-and-trace system to help authorities monitor tobacco products throughout the supply chain and identify those circulating outside the legal market.
While acknowledging efforts by government agencies to fight illicit trade, he said sustained enforcement would be necessary to reverse the trend and protect legitimate businesses.
Wafula reaffirmed BAT Kenya's commitment to working with regulatory and enforcement agencies to combat illegal cigarette trading, protect legitimate manufacturers and help safeguard government revenue.