Dealers in illicit tobacco products have now captured nearly half of Kenya’s cigarette market, underscoring the rapid growth of the contraband trade fuelled by lax enforcement and the country’s porous borders, particularly with Uganda.
This has in turn deprived the Kenyan government of Sh47 billion in tax revenue over the five years to 2025, according to a new study commissioned by cigarette maker BAT Kenya.
The study by market research firm Kantar Insights East Africa Ltd found that illicit cigarettes accounted for 45 percent of the market in 2025, an increase of 5.5 percentage points from 39.5 percent in the previous year.
This means almost one in every two cigarettes sold in Kenya is now illicit—pointing to a hit to businesses with multi-billion shilling investments in the sector supply chain, as well as the health and safety risks.
Illicit cigarettes are defined as those that are produced, imported, exported, purchased, sold, or possessed in violation of national and international laws—most commonly by evading taxes and regulatory health and safety controls.
The study revealed that Kenya’s total cigarette market volume stood at about 4.24 billion sticks as of 2025, with the legal businesses paying duty controlling a 55 percent stake, which is a drop from 60.5 percent in the previous year.
It marks a major escalation in the trade in contraband cigarettes, a trend insiders mainly linked to a sharp increase in excise duty on tobacco products between 2018 and 2022, widening the tax gap between Kenya and Uganda.
“Interestingly, during this period, collection in excise declined by Sh1 billion,” Sidney Wafula, the chief executive officer of BAT Kenya, said.
The increase in excise rate on tobacco products in Kenya has not been followed by its East African Community (EAC) peers, including Uganda and Tanzania.
This wide margin in excise rates has created an economic incentive that has fuelled a steady increase in the flow of illicit cigarettes from Uganda, turning western Kenya into one of the thriving hubs for this illegal trade.
Legal cigarette manufacturers that pay taxes, such as BAT Kenya, have borne the brunt of the illicit trade, the report shows.
Their market share contracted by 11 percentage points between 2021 and 2025, falling from 65.9 percent to 54.9 percent, its lowest recorded level.
BAT Kenya Managing Director Sidney Wafula (left) and Deputy Head Policy and Regulatory Advocacy at Kenya Association of Manufacturers Dr Simon Githuku at Ole Sereni in Nairobi on November 5,2026 during the release of a Study on the Impact of Illicit Cigarette Trade in Kenya.
Photo credit: Evans Habil | Nation Media Group
Mr Wafula said the proliferation of illicit cigarettes was concentrated at the lower end of the market. He cited the company’s cheapest cigarette pack, which retails at Sh180.
Excise duty alone accounts for Sh82, while the 16 percent value-added tax (VAT) adds another Sh20, taking the two taxes to slightly more than Sh100.
“You have Sh80 between the trader, product cost, BAT’s employment cost and everything else and the profit,” said Mr Wafula.
He argued that illicit traders have an unfair cost advantage because they avoid the Sh100-plus tax burden.
“You [those not paying taxes] are actually able to sell at even below Sh100 bob a pack, and you are still making more money than me. That is where the trick is,” he said, explaining how illicit traders are undercutting legitimate manufacturers.
Tax evaded by the illicit market in 2025 alone was Sh10.2 billion, a 50 percent increase from Sh6.8 billion in 2020, according to the report.
The report notes that the growth in illicit volumes has outpaced any revenue recovery from excise rate increases, confirming that rate rises are limiting the effectiveness of excise policy.
Between 2018 and 2022, excise duty on tobacco products increased by 55 percent as the government sought to raise more revenue from what it considers the “sin” industry, which also includes alcohol.
Mastermind Tobacco — the country’s second-largest cigarette maker, whose assets have since been acquired by Signature Leaf Ltd — was among the hardest hit by the illicit trade, with its flagship product, Supermatch, ranking among the most counterfeited.
Founded in 1987 by the late Wilfred Murungi, Mastermind Tobacco suffered years of financial difficulties amid competition from illicit cigarettes and mounting tax and debt pressures, culminating in its placement under administration by I&M Bank in December 2023.
In July 2023, Mastermind said that the local market was flooded with up to 80 percent of products bearing the name of Supermatch, which it notes is smuggled into Kenya from neighbouring Uganda.
Uganda, which borders western Kenya, is a major source of counterfeit cigarettes, with 95 percent of illicit cigarettes found in Kenya believed to originate from the country, according to the study.
The EAC Common Market Protocol, which came into force in July 2010, may also be contributing to the illicit trade along the border.
This protocol promotes the free movement of goods, people, services, labor, and capital while guaranteeing rights to residence and establishment.
But without the right oversight, the protocol is being abused, with counterfeit products also moving freely across the borders to the detriment of established brands and the taxpayers who are losing billions from this racket.
The law enforcement agencies note that the thriving multi-billion shilling illicit trade in contraband and counterfeit goods is sustained by lethal and aggressive yet untouchable cartel smugglers who operate under the protection of unscrupulous customs officers, corrupt police officers and other government officials.
The report calls for stronger border surveillance and enforcement, a comprehensive track-and-trace system for tobacco products, tighter controls on informal distribution networks, regional cooperation to combat smuggling and a review of excise duty policy to narrow the price gap between legal and illicit cigarettes.
