Hard times for tobacco industry as taxes, laws and counterfeits weigh in

Tobacco industry players face harsher times after the Government on Thursday increased levies on the cigarettes, months after introducing laws on labeling of packets. More to increasing levy, the State introduced the Tobacco Control Law to curb consumption of its products.

But will Kenyans feel the pinch of buying costlier cigarettes or will the industry loose due to the unpleasant https://cdn.standardmedia.co.ke/images in the packets. The business curve in the industry show that though the Government had tried to reduce consumption of cigarettes, the move has not had a ripple effect on the profits made by the companies.

Also, the current revenue structure of excise taxes is dominated by beer and cigarette taxation. These two  combined account for over 80 per cent of excise tax revenue.

“Mr Speaker, in this simplified and modern bill, we are imposing excise duty to compensate for harmful effects caused by production, supply, consumption or use of goods and services, which costs are not directly reflected in their prices,” Treasury Cabinet Secretary Henry Rotich told Parliament on Thursday.

Key brands

Since the 1970s, the BAT was the sole producer of cigarettes in Kenya. However, in 1988 Mastermind was established with a launch of Super-match in 1989, while Phillip Morris and RJ Reynolds International entered the market in 1996.

Cut Tobacco was established in 1995 to import cigarettes for re-export to Somalia and Ethiopia but closed shop in 2003. Currently BAT controls 78 per cent of market Share, followed by Mastermind Tobacco at 20.3 per cent. “Mr Speaker, through this bill, we are introducing a new tax based on units of quantity only. As such the bill imposes a charge on sticks of harmful cigarettes and tobacco.”

The announcement by the CS is likely to spark more price wars as tobacco and beer companies moot on how to remain profitable. Already BAT had moved to court challenging tobacco control regulation.

New regulations

The firm’s head of Legal Affairs Simukai Munjanganja in his affidavit before the court argued that the costs of compliance with the new regulations are huge and will negatively impact  on the company.

The High Court last week gave the institution a temporary relief by ordering that 2014 Act, requiring that the companies print health warning on the packets be halted until the case is heard and determined. The case before High Court Judge Mumbi Ngugi is, however, still in infancy stage. Counterfeits also still dog the industry.

Recently, BAT Kenya urged the Government to crack the whip on sale and distribution of counterfeited tobacco products. “Where illicit traders use the infrastructure of legitimate economy to conduct their business, various costs and risks are imposed onto business,” said Munjanganja.

The firm says between 400 to 600 billion cigarettes - the equivalent of 12 per cent of world consumption are illicit.

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