British American Tobacco’s Latest Tax Controversy

The Kenya Revenue Authority recently announced it is reviewing findings from a new report about British American Tobacco (BAT)’s questionable tax payments.

The report identified a tax discrepancy of up to US $28 million, raising questions about BAT’s activities in Kenya. The findings are just the latest example of the global tobacco company’s questionable tax practices around the world—and of how such an alleged failure to pay its fair share of taxes hurts public health.

Researchers from The Investigative Desk, with support from the Tobacco Control Research Group at the University of Bath and Tax Justice Network Africa, reviewed six years of British American Tobacco Kenya (BATK)’s annual reports and compared them with production data, internal government documents and data on cigarette consumption and prices.

They found BATK’s 2017 and 2018 revenue statements “riddled with contradictions and discrepancies.” Among them, the revenue the company reported did not reflect the amount of cigarettes it produced nor the value of the products it sold. In one example, in 2018, BATK reported about US $108 million in revenue from domestic sales. But the revenue it could have made based on the amount of cigarettes it produced would have been significantly higher—up to US $166 million. This raises a question about the company’s reported revenue and the subsequent profit tax it paid, both of which were substantially lower than if BATK had sold all of the cigarettes it produced.

The report authors point out: “It seems unlikely that the highly profitable cigarette giant produced billions of cigarettes without selling them.”

In response to the findings, BATK insisted that the company “pays all taxes in line with applicable laws,” but did not offer a plausible explanation for the discrepancies, according to the report. Meanwhile, two BATK board members have announced their resignations, though BAT says these departures are unrelated to the investigation. The Kenya Revenue Authority has promised to address any evidence of tax avoidance or evasion with “the utmost urgency.”

Where there’s smoke…

This isn’t the first time BAT’s tobacco tax practices have been called into question.

In 2024, Bangladesh’s National Board of Revenue found that BAT Bangladesh had been evading taxes over the past four fiscal years by selling cigarettes at higher prices than it reported, without paying the corresponding higher taxes.

A 2020 report by the Investigative Desk cited BAT as one of the tobacco companies that engaged in “the entire range of common tax avoidance methods.” In one example, researchers say, BAT used the “group relief” method, where a company uses (artificial) losses from one subsidiary to offset the profits of another, to lower its U.K. corporate tax bill by an estimated £760 million (almost US $980 million) over ten years.

A 2019 report by Tax Justice Network shined a light on BAT’s methods of shrinking its tax contributions in low- and middle-income countries (LMICs) by shifting money that would have been taxed locally to a subsidiary in the U.K., where the company paid far less than its fair share in taxes. The report estimated that countries including Bangladesh, Indonesia, Kenya, Guyana, Brazil, and Trinidad and Tobago would lose up to US $700 million in much-needed tax revenue by 2030 if BAT continued its practices.

In 2017 and 2018, the South African Revenue Service demanded 357 million Rand (more than US $19 million) from British American Tobacco South Africa (BATSA) in unpaid excise duties. BATSA disputed these payments.

BAT has also tried to influence tax policies around the world in favor of its business. It allegedly influenced the development of Sri Lanka’s tiered tobacco tax system in 1994, which allows tobacco companies to shift their products between tiers to minimize their tax obligations. The company has also taken advantage of such a tax system in Bangladesh, where it introduced a new lower-tier brand of cigarettes with lower ad valorem excise tax. Researchers say this created a tax revenue gap between 2.7 billion (about US $22 million) and 9.8 billion (about US $81 million) Bangladeshi taka.

Adding insult to injury in LMICs

LMICs bear a disproportionate burden of the world’s tobacco use. Of the world’s 1.3 billion tobacco users, 80% live in LMICs. When multinational tobacco corporations maneuver to reduce the taxes they pay in these countries, LMICs are left with fewer resources to manage the costs of this substantial burden.

Kenya is no exception. Tobacco use kills about 12,000 Kenyans every year, and causes an estimated US $333 million in economic damage per year.

And it’s not just the burden of tobacco use that falls on LMICs. Most tobacco growing has also been shifted to LMICs, where farmers face the health risks associated with growing tobacco, as well as labor practices that exacerbate poverty.

Tobacco companies target people living in LMICs, grow and buy tobacco leaf cheaply in LMICs, and manufacture their products in LMICs, while short-changing LMIC governments on tax revenues that could go to smoking cessation programs, crop diversification efforts or health programs.

The tobacco industry must be monitored

The tobacco industry uses exploitative accounting practices to boost its profits, at the expense of public health, social equity and the environment. This latest report on BAT’s potential tax avoidance in Kenya is just another example of why tobacco companies’ financial reporting must be carefully scrutinized.