BAT-Kenya lobbying for tax reduction to give Lyft a lifeline in Africa

British American Tobacco (BAT), through its Kenya subsidiary, is lobbying the government to slash a proposed tax hike on a yet-to-be launched nicotine pouch – a move expected to boost company profit, cement dominance in the African market, and compensate for the dipping cigarette use in Europe.

In a submission to parliament’s Finance Committee, BAT Kenya argued that the proposed over-100% increase on excise duty spells doom for its KSh2.7bn ($25m) nicotine pouch plant, which is currently under construction.

“If not reviewed, the proposal will result in our inability to launch these products, foreclosing what should have been a new revenue stream for the government,” says BAT Kenya Managing Director Crispin Achola, while warning of possible relocation.

“Our factory will no longer be commercially viable,” he says.

BAT’s nicotine pouch, trading under the Lyft brand, entered the Kenya market a year before a temporary ban on the product in February 2021 over regulatory non-compliance that made it easily accessible to children.

Kenya classified Lyft under the strict Tobacco Control Act and the pouch is now subject to high taxes to discourage use due to its high addictive nicotine content. The pouches are placed under the lip for the body to absorb nicotine, but do not contain tobacco.

We can never get into any negotiation or discussion with them [BAT]. Ours is to protect the public health interest, theirs is to protect the profits, those are irreconcilable differences.

In 2019, the parliamentary finance committee cut the Treasury proposal to raise excise duty on nicotine oral pouches from KSh5,000 to KSh1,500 per kg. In 2022, the Treasury proposed KSh2,500 per kg excise duty, reflecting over 100% increase in excise duty for the product, despite the active ban of the product over regulation.

Ironically, even with the high excise duty of about 30% on nicotine products from 2019, the company still managed a profit after tax in 2021 of KSh6.5bn, up 18% from KSh5.5bn in 2020.

BAT Kenya’s 3% gross revenue growth of KSh4bn was impacted by KSh1.1bn (8%) increase in excise duty and Value Added Tax (VAT) following yearly inflationary surges reviewed by Kenya Revenue Authority (KRA), which the company says led to ‘market shock’.

In Kenya, BAT spent a cumulative KSh18bn on all forms of taxes in 2021, a 13% increase compared with 2020. The tobacco maker now wants the government to maintain the current rate of excise duty in order to establish a market for its Lyft nicotine pouches in Kenya.

Parent company
BAT Plc, the parent company, marshalled a global strategy consisting of product diversification from cigarettes to compensate flagging sales across the world as it eyes new customers. In the UK, the company’s home country, traditional smoking levels have dipped to 14.1% from 23% in 2012 as vapes and other cigarette alternatives gain traction.

The non-combustible nicotine pouches plant in Nairobi is targeting the untapped African market once it gets the green light from public health authorities to resume domestic sale and distribution.

BAT supplies 15 countries with cigarette and cut rag tobacco from its Kenyan plant and will be eyeing 19 countries within the COMESA trading bloc.

However, behind its stunning financial performance, the company’s dark practices paint a different picture to health officials and competitors.

The multinational has previously been accused of deceit, cutthroat competitions, bribery, and sabotaging public health policy to perpetuate tobacco addiction at the expense of raking huge profits, according to STOP, a global tobacco industry watchdog.

STOP shows that this secret trail mainly targeted Africa, where cigarette smoking is rife and safer nicotine alternatives are in limited supply.

BAT Plc had in its latest financial report, indicated that it has beefed talks with the Kenyan government to address regulatory stalemate to ‘support a commercially sustainable re-entry’ of the oral pouches, something that one state official terms as “outright lies”.

Kenya has remained firm, insisting that only regulatory compliance will guarantee green light to market nicotine pouches.

“We can never get into any negotiation or discussion with them [BAT]. Ours is to protect the public health interest, theirs is to protect the profits, those are irreconcilable differences. They should comply. That’s our demand and what was written to them through the ministry of health,” Nancy Gachoka, chairperson at Kenya’s Tobacco Control Board tells The Africa Report.

The regulatory curb and higher taxes standoff, according to some lobby groups, risks boosting massive illicit trade and depriving Kenyans of a healthier alternative.

“The Bill will dictate that smokers stick with the deadly option of cigarettes to satisfy their nicotine craving or seek out alternatives on the black market, exposing themselves to unregulated and potentially dangerous products,” says Joseph Magero, Chairman of the Campaign for Safer Alternatives (CASA) in Kenya.