Reforming Excise Taxation on Tobacco Products in Kenya

This paper explores the excise taxation systems for tobacco products in Kenya, focusing on reform of the tobacco taxation system to achieve equity in taxation by changing the tax structure to be based on optimal tax rates and reviewing the considerations for filter and non-filter cigarettes. Utilizing a proprietary elasticity estimation nuanced by a literature review to generate joint Laffer curves, we identify potential adjustments that could increase government revenue without causing significant market disruptions. From the comprehensive review of the excise tax system on tobacco products, there are strong arguments in favor of equal treatment of cigarette brands and a uniform tax structure for filter and non-filter cigarettes. The empirical analysis suggests that there is a scope to raise taxes on tobacco, which could not only boost fiscal income but also improve public health outcomes by discouraging excessive consumption. However, it is worth considering that the policy considerations and the resulting revenue projections will change depending on the enforcement policies accompanying them. Therefore, it is important for the government to strengthen enforcement measures to curb illicit tobacco trade and protect the legal market.