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Tax should not just limit tobbaco consumption but spur innovations

By Magdalene Kariuki | June 14th 2020


The tobacco industry is grappling with tight regulations globally even as informed consumers demand safer alternatives with less public health risks.

These challenges to the industry’s value chain, complicated by an unpredictable tax regime, have pushed tobacco manufacturers into innovation to suit consumer preferences and ensure business continuity.

Taxation and excise duty has been used by governments globally as a tool for reducing tobacco consumption, disproportionately raising prices of cigarettes relative to other goods and services.

This is guided by the World Health Organisation framework on tobacco control to which Kenya is a signatory. Evidence has shown that changes in design and rates of tax have had little impact on average tobacco use and health outcomes, because cigarettes are price inelastic.

Instead, the increase in excise duty has had other unintended consequences, such as illicit trade and production of tobacco products. Generally, the manufacturing and distribution of tobacco products have been subject to over-regulation.

Case in point was the proposal which duplicates the provisions of the Tobacco Control Act of 2007 and the Tobacco Control Regulations of 2014 as espoused in the Nairobi City County Tobacco Control Bill of 2018.

While strong submissions by lobbies held sway to prevent the proposal from becoming law, it demonstrated the threat of over-regulation that the tobacco industry faces, owing to lack of technical and human resource capacity to appreciate adverse impacts to the sector.

Revenue loss

Over-regulation of the industry could hurt government revenues. Already, it has seen the growth of the illicit cigarette market which stand at 14 per cent of the total value - translating into Sh2.5 billion loss of government revenue annually.

Thus, for the sustainability of the tobacco industry, there is a need to redesign the excise tax regime, beyond the continuous annual adjustments upward.

The reforms should balance consumer protection while taking into account the contribution of the tobacco industry to the economy. Currently, it accounts for more than Sh20 billion annually in tax revenues and over 100,000 jobs, besides supporting a massive value chain.

The 2020/2021 budget policymakers should not just use taxes as a tool for limiting consumption, but encourage innovation.

Increasingly, manufacturers are shifting towards safer alternatives. Global players such as Philip Morris International have committed to a ‘smoke-free’ with a plan to promote e-cigarettes as a less harmful alternative.

The firm commands 15 per cent of the global market share.

The British American Tobacco has also announced plans to set up a plant to manufacture oral nicotine pouches with zero tobacco in Kenya.

The innovations will encourage smokers to migrate to safer products that deliver nicotine without toxic chemicals. The industry needs a conducive and predictable tax regime.

-The writer is a development policy analyst  

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