By OMBOKI MONAYO
Following President William Ruto’s assent to the Excise Duty Act on December 11, 2024, legal tobacco and nicotine products will become more expensive due to higher excise duties.
The recent hike in excise duties levied on filtered cigarettes and nicotine substitutes meant for inhalation raises concerns about the potential surge in illicit tobacco trade.
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Although the measures are designed to generate more revenue while protecting public health through the reduced consumption of tobacco and nicotine products, the downside is the likelihood of consumers seeking cheaper alternatives, thereby boosting the demand for illicit tobacco products.
This shift can fuel the illicit market, creating a cycle where higher taxes inadvertently drive illegal trade.
Illicit traders may adapt by increasing their supply to meet the new demand, using sophisticated smuggling techniques, and expanding their operations to capitalize on the increased demand for cheaper tobacco products.
The potential for profit from smuggling and illegal sales may entice more participants into the illicit market. As noted in various studies, the financial incentive to evade taxes increases with higher prices.
This could lead to organized crime networks expanding their operations to capitalize on the increased demand for cheaper tobacco products.
In regions with porous borders where enforcement is lax, these networks can thrive, making it challenging for authorities to combat illicit trade effectively.
Illicit tobacco traders are likely to employ several strategies to evade the new excise duty rates imposed by the Kenya Revenue Authority.
This includes smuggling tobacco and nicotine products from neighbouring countries with lower taxes, producing and distributing counterfeit cigarettes, selling “illicit white” cigarettes, and utilizing various evasion techniques such as falsifying shipping documents or using front companies to disguise the origin of their products.
However, it is essential to note that higher taxes do not automatically correlate with increased illicit trade.
Evidence from other countries suggests that effective enforcement and improved compliance measures can mitigate these risks.
For instance, countries that have implemented robust tracking and tracing systems alongside tax increases have often seen a reduction in illicit trade rather than an increase.
The World Bank emphasizes that lax enforcement is a core driver of illicit trade, indicating that strengthening regulatory frameworks could counteract potential growth in illegal markets.
As Kenya implements higher tobacco taxes, it is crucial to invest in comprehensive strategies to combat smuggling and enhance compliance.
This includes investing in public awareness campaigns to educate consumers about the dangers of illicit tobacco and the importance of adhering to tax laws.
Moreover, the government should consider implementing measures to reduce the attractiveness of the black market.
This can be achieved by enhancing border controls, increasing penalties for illegal sales, and improving the overall regulatory framework.
By doing so, Kenya can minimize the adverse effects of tax increases on illicit trade while achieving public health goals.
Smoking has been shown to cause an estimated 12,000 deaths in Kenya annually.
The habit is associated with a higher risk of developing a host of medical conditions including cancers of the mouth, throat and lungs, diabetes, high blood pressure and erectile dysfunction.
The expected price increases may deter some users from purchasing tobacco and nicotine products, which can lead to a reduction in the products’ consumption and ultimately improve health outcomes.
Additionally, the revenue generated from the taxes can be used to boost public health initiatives such as the Solatium Fund, further reducing the economic burden of tobacco-related diseases on society.
While the increased taxation on tobacco and nicotine products in Kenya may initially stimulate the illicit tobacco trade, the extent of this adaptation will depend significantly on the government’s response through robust enforcement and regulatory measures.
By investing in comprehensive strategies to combat smuggling and enhance compliance, Kenya can potentially minimize the adverse effects of tax increases on illicit trade while achieving public health goals.
Effective enforcement measures and public awareness campaigns will be crucial in mitigating these risks and ensuring that tax increases achieve their intended public health benefits without significantly boosting the illicit market.
Ultimately, the success of these measures will depend on the government’s ability to balance tax policy with effective control measures, improving health outcomes and reducing the economic burden of tobacco-related diseases on society.
-Mr. Monayo is a freelance science journalist and a communication consultant at Kaski Creatives. The views expressed in this article are the writer’s own and do not reflect the editorial policy of the publication.
–Images courtesy of Freepik.com
