The Kenya Revenue Authority released the annual revenue performance of Kenya where there was a significant decline in tax receipts from locally produced excisable goods and services since the pandemic shutdowns by 5.7% to KES 69.4 bn from KES 73.6 bn in FY’ 2023/2024. Surprisingly, this was the first drop in collections from the sale of local excisable products since 2019/2020. This performance can be attributed to a decline of revenue remittance from manufacturers of beer and tobacco products by 13.9% and 8.9% respectively. This unexpected decline signals structural inefficiencies, the growing threat of illicit trade, and the delicate balance policymakers must strike between taxation, compliance and public health.
Alcohol and tobacco excise have often been seen as dependable avenues for government tax collection. This is because it is predictable, easy to enforce and political defensible due to their public health implications. However, as taxation becomes steeper and economic conditions tighten, consumers are increasingly turning to cheaper, often illegal alternatives, shrinking the tax base and exposing the flaws in current enforcement mechanisms. To reverse this worrying trend and safeguard critical tax revenues, Kenya must move beyond reactionary tax hikes. A proactive, multi-pronged approach is needed, one that balances revenue goals with market realities, promotes compliance, and discourages harmful substitutions.
First, moderating the tax burden. While excise taxes serve public health goals, frequent and sharp increases risk making legal products unaffordable, encouraging a shift to illicit goods. Kenya could adopt a more measured approach which is moderate, predictable tax adjustments informed by inflation, production costs and consumer behavior, rather than abrupt hikes that destabilize the market. Second, expand and modernize digital tax tools. Enhancing the Electronic Tax Stamp System to track products in real time from factory to shelf can help seal revenue leaks. Integration with digital payments and inventory tracking for manufacturers and distributors would ensure greater transparency.
Third, promote public awareness and compliance culture. Educating the public about the dangers of illicit products and the importance of tax-supported services such as healthcare and infrastructure can foster voluntary compliance. At the same time, rewarding compliant manufacturers with faster approvals or reduced red tape could increase cooperation. Strengthening anti-illicit trade measures. The government must strengthen border surveillance, increase crackdowns on counterfeit products, and work closely with regional trade partners. Advanced scanning tech, stronger port security, and inter-agency coordination will be essential.
Kenya’s excise revenue decline reflects deeper economic, regulatory, and behavioral trends. By combining smarter tax policy with tighter enforcement and market-friendly reforms, the government can rebuild its excise base sustainably. The goal should not be to over-tax, but to outsmart tax evasion and illicit trade, while preserving the health and safety of citizens.
