Cigarette firms feel the heat as tax laws hit home

Collins Teita is only 27, but  he  has been smoking half his life.  He took his  first puff as a teenager in high school, driven by  curiosity and peer pressure. But for Teita, there was also the fact that cigarettes were readily available; it was easy to get a stick from  the shops right outside his school.

Besides, his father was a wholesale cigarette distributor, so there were boxes  of cigarettes stacked in tall towers at his father’s shop. This made it easy for him  to slip a box into his bag unnoticed.

“Since I could not smoke at home, I snuck the cigarettes to school and dutifully distributed them to my friends. After that first puff I was hooked and had to find a way to sustain my supply after my box ran out. I joined the  boys who used to sneak out of school to buy cigarettes from shops just a few metres from the gate,” he said. And thus began a habit that he has unsuccessfully  to kick.

DEVELOPED THE HABIT

“The first cigarette I smoked was stolen from my father’s shop, but had there   been no way of getting cigarettes near school, and had  I  not seen my friends  buy cigarettes and mint sweets to hide their breath, it is unlikely that I would have developed the habit,” he said.

The prohibition of the sale of single  cigarettes sticks is contained in the raft of anti-tobacco laws passed by the  government that cigarette manufacturers are challenging in court. Single sticks cigarettes cost between Sh8 and Sh10, making them affordable to schoolchildren.

According to the 2013 Global Youth Tobacco Survey, one in 10 teenagers between 13 and 15 is a smoker, and most (45 per cent) pick up the habit at school.

In a 2018 application to the Supreme Court, British American Tobacco and Mastermind Kenya asked for a stay of the 2014 Tobacco Control Act, arguing that the laws were punitive to the tobacco industry since they  made it difficult for  tobacco manufacturers and sellers to conduct  business.

Yet even as the tobacco industry fights more regulation in its sub-Saharan market, the same regulations have been in force for years in the West, and have led to a decline in smoking in countries such as the United Kingdom and the United States.

BAT AND MASTERMIND

BAT and Mastermind have specifically been accused of attempting to thwart the same laws in Africa that have saved lies in the West. Smoking has been associated with a wide range of illnesses, most notably cancers and heart diseases, which the Kenyan government spends billions of shillings treating every year.

In 2018, BAT’s profits slumped and its share price nosedived to a three-year low, which the company attributed  to a “harsh business environment”.  It  specifically blamed the government’s harsh tax regime on tobacco products.

“The 50 per cent increase in tax at the end of 2015 has continued to have an impact on our consumers. On the back of that tax increase we obviously have to increase the price of the cigarettes significantly. The reaction from the consumer is either to choose to spend their money elsewhere, or to downgrade to cheaper cigarettes.

That has a direct impact on the industry,” said BAT Kenya Managing Director Beverly Spencer-Obatoyinbo in an investor briefing in February when the company’ released its 2017 financial performance report.

HEAVILY TAXED

But the Kenya Tobacco Control Alliance says tobacco should be  heavily taxed to safeguard  Kenyans’  health.

“We are aware that tobacco companies have been fighting to ensure that taxes on tobacco products remain low. They do so because they know that high taxes make tobacco products expensive,  reducing demand for them.

It should be emphasised  that, unlike other products, which are mainly taxed for the purpose of raising government revenue, tobacco taxation serves the  very crucial purpose of reducing demand for tobacco products,” said Kenya Tobacco Control Alliance Chairman Joel Gitali in a statement.

According to an anti-tobacco watchdog at the University of Illinois, US, rescinding high taxes for cigarette makers would affect the Kenyan economy not only lowering revenue possibly to the tune of Sh67 billion over a 10-year period, but  also by  placing a greater health cost burden from increased cigarette smoking on the country’s already struggling health infrastructure.

INCREASE TAX

Currently, cigarettes are taxed depending on the type;  filtered cigarettes attract Sh1.80 per stick and those without filters Sh2.50 each. A Nairobi based thinktank, the International Institute for Legislative Affairs, says  the  system is flawed and costs the government Sh7 billion in taxes every year.

Not only did the tobacco regulations  increase tax substantially, but they also made it impossible for the  industry to lobby for favourable regulations from ministry officials. For instance, the public officials are strictly prohibited from interacting with the tobacco industry, unless it is to discuss further control and enforcement of the  relevant laws. And  two police officers must be present at such meetings.

“Before starting any interaction with the tobacco industry, the public officers shall state, in writing, that the interaction does not imply an endorsement of tobacco industry practices, and that that no relationship, collaboration or partnership shall be construed whatsoever from the interaction,” says the Act.