NAIROBI, Kenya, Mar 10 – Cigarette maker British American Tobacco (BAT) Kenya is calling on the Kenya Revenue Authority (KRA) to improve its tax collection methods to cut down on the level of illicit cigarette trade.
BAT Kenya Managing Director Gary Fagan said on Wednesday that there has been an increase in diversion of transit export goods into the local market that has affected the company’s business.
“This is what we call round tripping where goods we thought are out of the country find their way back in,” Mr Fagan said.
His sentiments come barley a week after BAT cigarettes worth Sh25 million meant for export were nabbed en route back into the Kenyan market. He said the practice led to a five percent reduction of the total cigarette market in the country in 2009.
A recent industry report shows that illicit trade in cigarettes accounts for 12 percent of the total consumption in Kenya. One way of cutting, down on the vice, he said, is collection taxes from the border entry points. Mr Fagan said this would put off unscrupulous traders finding it easy to re-route export cigarettes.
BAT Kenya serves as a hub for 16 African countries most of which are landlocked and import directly from Kenya, which has seen some traders diverting transit goods.
The practice is said to cost the government an estimated Sh5 billion annually.
The MD was of the opinion that the country lacked stiff penalties to discourage the trade. The situation is complicated even further because cases involving illicit trade are mostly handled by the magistrate courts, which hand out lenient penalties.
“If you take what happened to us last week, there is simply no relation between the value that is lost and the penalty taken on illicit traders,” he said.
The most affected brands of cigarettes in the region by the traders are Supermatch, Sportsman and Dunhill. At the same time, Mr Fagan called for a reduction on the excise duty put on cigarette manufactures.
He said the current excise duty was unsustainable making cigarettes unaffordable to the low-end market while opening ground for contraband to find their way into the local market.
“As a business we cannot absorb that high cost and we are forced to pass it on to the consumer who then feels the pinch,” he said.
He said the company had experienced a compounded excise increase of more than 60 percent between 2008 and 2009.
“When excise tax rates are continuously increased, illicit trade grows as consumers turn to cheaper or counterfeit goods,” he said.