BAT Kenya wants the State to spare the new non-combusted cigarettes from higher ‘sin tax’ as tobacco manufacturers begin to lobby against heavy taxation following a year of reprieve.
The government has already indicated that it intends to harmonise excise tax across all cigarette products, raising the prospect of higher taxes on filtered burnt cigarettes as well as non-combusted tobacco products such as nicotine pouches and e-cigarettes.
However, BAT Kenya, which is listed on the Nairobi Securities Exchange, is calling for a differentiated excise duty, commonly known as sin tax, on tobacco products based on their risk.
Speaking to journalists on Tuesday, Crispin Achola, managing director at BAT Kenya, requested the government to subject the new, non-combusted tobacco products to lower excise taxes compared to the conventional burnt cigarettes, noting that studies have shown the former are less harmful.
“What I mean by that is that part of the reason for the excise tax…is around discouraging consumption because of externalities associated with consumption of certain products,” he said.
“What we believe is that if we have less risky products available for consumers, the tax for that should also be reduced because the risk of those products to consumers is reduced in nature.”
With the decline in the popularity of cigarettes due to their adverse effects, including causing cancer, tobacco firms have been burning midnight oil to come up with new products, which they say are less harmful as they battle for survival.
The primary way governments around the world, including Kenya’s, have sought to discourage the use of cigarettes and other harmful products is through heavy taxation.
In its Medium Term Revenue Strategy 2023, the government says it will scrap the existing three-tiered tobacco taxation regime. With a tiered system, different excise duty rates are applied on filtered cigarettes, non-filtered cigarettes and other tobacco products.
Some experts have faulted this tiered system, arguing that the uniform tax is considered the best-practice tobacco tax policy globally.
“The government will harmonize excise duty rates across filtered cigarettes, non-filtered cigarettes and other tobacco products taking into account international best practices and promoting fairness,” reads the Medium-Term Revenue Strategy.
“Given the negative health externalities of these products, the rates will be based on the extent of the externalities as well as recommendations of the ongoing study by the EAC (East African Community) partner states.”
Under the tiered system, non-filtered cigarettes are slapped with a higher excise tax than filtered while other tobacco products, including e-cigarettes, are subjected to the lowest sin tax.
Earnings from excise duty on cigarettes have been on a decline, dropping from Sh12.8 billion in the fiscal year ended June 2018 to Sh11.76 in the year to June 2022, official data shows.
In the year ended December 2023, BAT Kenya announced a 19.2 percent drop in net profit growth to Sh5.57 billion which the tobacco manufacturer blamed on reduced sales owing to increased taxes. In the previous year BAT made an after-tax profit of Sh6.9 billion.
Excise and Value added Tax (VAT) increased to Sh15.69 billion in the review period from Sh14.87 billion in the previous period, reducing the company's net sales.
Also during this period, Mastermind Tobacco was pushed into administration by I&M Bank over undisclosed debt, reflecting a tough operating environment for the tobacco industry which has also been roiled by the proliferation of counterfeit cigarettes.
BAT Kenya argues that, save for the addiction that comes from nicotine, the harm in non-combusted tobacco products is down by almost 90 percent which is why different countries have subjected them to different regulations from burnt products.
Kenya has not yet come up with specific regulations for non-combusted products.
The United States Food and Drug Administration (FDA), while agreeing that non-combusted products are less harmful compared to conventional burnt cigarettes, it insists there are no safe tobacco products.
“Non-combusted cigarettes may help reduce the risk of tobacco-related harms for adult smokers who switch completely from combusted cigarettes, but all tobacco products can lead to nicotine addiction and contain toxic, cancer-causing chemicals that can cause serious health problems,” says the FDA on its website.
