Kenya: British American Tobacco suspects tax evasion and smuggling

A recent report published by The Investigative Desk highlights possible tax evasion practices by the manufacturer British American Tobacco in Kenya, resulting in an estimated $28 million in lost budget revenue for the Kenyan government (approximately €27 million). Furthermore, the discrepancy between the figures declared by the tobacco company and the production volumes reported to the tax authorities could be explained by possible smuggling activities by the manufacturer. The authors of the report stress the need for a thorough financial audit of British American Tobacco.

The study is based on a comparison of BATK's annual reports, internal documents from the Kenyan Revenue Authority, and estimates of tobacco market trends, including those provided by the World Health Organization (WHO) and the World Bank.[1].

Millions of cigarettes unaccounted for

According to the report, British American Tobacco Kenya (BATK) reported a 7% drop in sales, while its cigarette production increased by 2.3%. This difference, estimated at several tens of millions of euros, was not explained by the manufacturer. According to the authors of the report, this situation could result in particular from a failure to declare part of the volumes produced and sold. In other words, these elements could indicate that the manufacturer is seeking to sell part of its stocks outside legal channels. Such practices, which amount to smuggling, would allow the manufacturer to under-declare its real income, and thus reduce its tax liability. In any event, the report concludes: "what exactly happened to these millions of packets of cigarettes remains a mystery."

Privatize profits, outsource costs

In general, the authors of the study highlight the tax avoidance strategy organized by the manufacturer, notably using subsidiaries in other countries with more advantageous tax policies. These practices of optimization, or even tax fraud, are however not new on the part of the tobacco industry. A few years earlier, The Investigative Desk had demonstrated that the main manufacturers mobilized an identical strategy in Europe. Thus, the tobacco industry channelled around 40 % of its annual profits through the Netherlands, allowing it to avoid a significant portion of taxes in the countries from which it derives the majority of its revenues. However, as the report highlights, the tax revenues generated by British American Tobacco are much lower than the health, social and environmental costs induced by the cigarette company's own activity. Indeed, tobacco consumption is the cause of the premature death of around 12,000 people per year in the country, while the health expenditures related to smoking alone are estimated at 333 million dollars per year (320 million euros), eight times the profit made by British American Tobacco in Kenya. Seen as a developing market, the African continent has been the scene of predatory policies by the tobacco industry for several years. This has particularly distinguished itself through its role in the organisation and facilitation of illicit trade, influence strategies and even corruption.

FT

National Committee Against Smoking |