Cigarette prices up by 33% despite Finance Bill withdrawal

Cigarette prices have gone up by between 20-33 per cent as manufacturers cash in on products, despite the withdrawal of the Finance Bill 2024 that had proposed an excise tax rise.

In the latest move, smokers who woke up to a shock increase have been forced to dig deeper into their pockets to afford cigarettes, where the price of a stick has increased by an average Sh5 at the retail market, for all brands.

For instance, Sportsman, which is one of the most common brands, has had its price increase from Sh15 to Sh20 per stick with a packet now retailing at an average Sh400 up from Sh300.

A packet of Embassy is now selling at Sh500 up from Sh400 with a stick going for Sh25. Some retailers are selling the Dunhill brand by up to Sh30 per stick, with a packet going for Sh600, prices retailers and consumers now say went up without notice.

“Unlike traditionally where a notice is given in advance, this time we woke up to an immediate increase. On inquiry, the main distributors indicated there was an email the previous night directing the increase, which found both our customers and ourselves unaware,” a retailer and wholesaler in Umoja, Nairobi, who sought anonymity, told the Star.

The move has now left consumers of tobacco products questioning whether the government pushed through earlier excise tax proposals in the withdrawn Finance Bill.

The Bill, which President William Ruto declined to sign after a countrywide protest, had proposed to increase tax on a mill (1,000 sticks) of filtered cigarettes to Sh4,100 from Sh4,067.03.

This would have seen an excise increase from Sh4.07 per cigarette toSh4.10, meaning a stick would have still gone up by a lower margin compared to the new prices.

Unfiltered sticks’ excise had been proposed to increase to Sh4,100 per mill from Sh2,926, or Sh2.96 per stick.

Manufacturers who have since increased prices had earlier opposed Treasury’s proposals in the Finance Bill which they had indicated it would stifle the industry, with increase in taxes encouraging illicit trade.

In a twist of events, manufacturers, led by BAT Kenya have moved to increase prices on the products.

BAT Kenya has however defended the price increase on its filtered cigarettes, effective last Monday, pegging the decision on production costs.

“Our recommended retail prices were communicated to the trade. Over the past year and into 2024, there has been a significant and sustained rise in our cost of production, occasioned by economic turbulence across both our domestic and export markets, arising from global and domestic geopolitical disruptions, currency fluctuations and rising interest rates, which has adversely impacted our trading environment,” the firm said in a response to the Star.

The price increase, it said, was necessary for the business to navigate an increasingly challenging operating environment and enable the company to continue to meet its business obligations, including supporting the livelihoods of over 80,000 Kenyans in its value chain.

The company reported a profits drop of 19.2 per cent to Sh5.57 billion for the financial year 2023, amid a increased costs of operations which went up by 0.8 per cent  to Sh17.6 billion, attributable to higher input costs offset by cost savings from productivity initiatives, as well as lower sales volume.

Taxation (excise duty, VAT, customs duties, solatium levy, tax stamps, Pay As You Earn  and corporation tax) increased by five per cent to Sh19.4 billion in financial year 2023.

Revenue declined by 6.7 per cent to Sh25.56 billion , primarily driven by lower domestic and cut-rag (semiprocessed leaf) sales. However, this was offset by pricing and foreign exchange benefits from the export sales.

The Consumer Federation of Kenya (Cofek) has since warned that price increases and high taxation are a recipe for illicit trade, which is rife in cigarettes and alcoholic drinks in the country.

“When service providers and manufacturers increase their prices astronomically, without notice and reasonable cause, they simply over-price themselves out of the market .In the consumables sector, that void is filled by the black market which unfortunately has no guarantees on quality on no legal warranties,” Cofek Secretary  General , Stephen Mutoro, said yesterday.

Mutoro who is also the chairman, Campaign Against Illicit Trade and Fake Products (CAITFAP), said such decisions negatively impact consumers with the government losing out on potential revenue.

An inconsistent tax regime, high cost of doing business and illicit and counterfeit trade continue to be blamed for curtailing growth of the country’s manufacturing industry.

Uganda remains a major source for counterfeit cigarettes sold in the country, where up to 70 per cent of products are believed to be illicit.

Illicit trade in the country is estimated at about Sh820 billion, with the Anti-Counterfeit Authority indicating the government loses in excess of Sh153.1 billion in potential revenue to illicit trade annually.

“The reality of this threat is further amplified by the fact that illicit trade in goods manufactured by sixteen sectors, that contribute 90 per cent of total manufacturing sector’s GDP accounted for 71 per cent of the total illicit trade,” ACA said in a recent report.