90% Of Illegal Cigarettes In Kenya Are Smuggled Along Ugandan Border

by Business Watch Team

BAT Kenya has announced its half-year results for the six months ending 30th June 2020; posting gross revenue of 16.6 billion shillings, profit before tax of 3.7 billion shillings, and contributions to Government revenue of 7.4 billion shillings.

The Board of Directors at BAT has approved an interim dividend of 3.50 shillings per share. The interim dividend, which is subject to withholding tax, will be paid on 18th September 2020 to shareholders on the register at the close of business on 21st August 2020.

Commenting on the results, BAT Kenya Managing Director, Beverley SpencerObatoyinbo said: “I am pleased to report that BAT Kenya’s business continues to show resilience despite the difficult operating environment in Kenya and our export markets.

“For the first half of 2020, gross revenue reduced by 13.6% to KSh16.6 billion as a result of lower domestic and export sales. This was mainly due to the impact of the COVID-19 pandemic on the consumer purse. With high unemployment and a significant increase in the cost of a number of basic consumer goods both in Kenya and our export markets, the pandemic has left many consumers more cash-stretched than ever.”

According to BAT Kenya, their domestic business continues to be impacted by consumer affordability challenges, owing to the recent 20 percent increase in tobacco excise duty. “As a result, we are seeing an increased presence of tax-evaded cigarettes in the Kenyan market as consumers seek out cheaper illegal products.”

The combined effect has been a domestic volume reduction of 35 percent, while contributions to Government revenues have reduced by 1.9 billion shillings to 7.4 billion shillings.

“Despite such impacts, profit before tax increased by 1.5% to KSh 3.7 billion, with the decline in revenue mitigated by productivity savings initiatives and prudent cost management measures.”

The company says it is concerned that, despite the current heightened border controls put in place to mitigate the spread of COVID-19, our trade teams continue to report an increased presence of illegal tax-evaded cigarettes particularly in western Kenya. This is consistent with third party research conducted at the end of last year, which indicates that more than 90 percent of illegal cigarettes sold in Kenya are smuggled across the Ugandan border.

“Illegal cigarettes continue to deny the Government in excess of KSh 2.5 billion every year. With the rising cases of COVID-19 infection and the resulting impact on the business environment, this is revenue that is desperately needed to support the economic recovery.”

“Evidently, border enforcement alone is not sufficient to stem the illicit trade in cigarettes. While Kenya’s ratification of the WHO’s Illicit Trade Protocol (ITP) is an important step, we urge the Kenyan authorities to redouble their enforcement efforts and enhance cooperation with their Ugandan counterparts to stem the flow of these products into Kenya. This requires the identification of the source of these illegal products and their supply routes.

Also commenting on the results, BAT Kenya Chairman, George Maina said: “The resilient performance of our business reflects our commitment to building a sustainable business that contributes to Kenya’s manufacturing and economic growth. As we navigate the COVID-19 pandemic, our primary focus is to ensure the safety of our employees, maintain business continuity, and work with relevant Government agencies to ensure a stable and predictable regulatory environment.”

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