Granting tax holiday for BAT nicotine pouch plant a bad idea

About six months ago, the British American Tobacco (BAT) Kenya announced plans to establish a plant in Kenya to manufacture their nicotine pouches for distribution within its African market.

And just last week, it emerged that the plant is nearing completion and that BAT-K was in talks with Treasury and Kenya Revenue Authority (KRA) to have the locally produced pouches exempted from excise duty for two to three years and subsequently lower tax rates.

This is according to a report published in a local daily on Friday, September 18. The company reckons that the tax holiday is justified by the size of foreign direct investment expected from the local plant production and export market; and their belief that the pouches are less harmful than cigarettes hence should be taxed less.

Their nicotine pouch is consumed by placing it under the lip and the nicotine is absorbed through the gum. According to the manufacturer, the product “offers a viable alternative to smoking…and has the potential to lead to a reduction in the projected health burden associated with smoking related diseases in Kenya”.

Since its introduction in the Kenyan market in July 2019, the product has gained a lot of popularity and interest, especially among the youth as acknowledged by BATK in news published in the media in February, 2020.

However, even though the company wants the public to believe that its nicotine pouch brand, called LYFT, is “less harmful”, there are a lot of concerns, both nationally and internationally, on the harm reduction narrative pushed by the industry.

The World Health Organization (WHO) cautions party states to be wary of this narrative, warning against claims of these products aiding with cessation as there isn’t comprehensive evidence to confirm such claims.

On the contrary, WHO points out the potential gateway and renormalization effects brought about by such products.

For instance, the gateway effect presents the possibility of young people (and generally non-smokers) initiating nicotine use at a rate greater than expected, if the product did not exist; and the possibility that once addicted to nicotine one could easily switch to cigarette smoking and possible dual usage.

The renormalization effect on the other hand presents a concern on the possibility that everything that makes such products attractive to smokers may enhance the attractiveness of smoking itself and perpetuate the smoking epidemic.

At the national level, concerns have been raised from various quarters of the public, including parents who have pointed out the dangers and health risks posed by nicotine pouches to the youth in Kenya.

Tobacco control advocates have also voiced their concerns on a number of issues around this product; including its associated health risks such as addiction which could potentially lead to increased consumption of traditional tobacco products such as cigarettes, its unclear registration and regulation in the country; and the apparent disregard of advertising and marketing provisions of the Tobacco Control Act (TCA) 2007.

In light of the above, the proposed tax holiday if granted to BAT will be a major setback to the public health protection agenda advanced by tobacco control policies and interventions currently ongoing in Kenya.

Specifically, in granting BATK the tax exemptions, the targeted government agencies (National Treasury and KRA) will be going against provisions of the WHO Framework Convention on Tobacco Control (FCTC- which Kenya is a party to), the national Tobacco Control Act (TCA) 2007 and the TC Regulations 2014.

The FCTC’s Article 5.3 guidelines principles state that the tobacco industry should not be granted incentives to establish or run their businesses given that their products are lethal. The TCA 2007 in Section 12 (a) requires the Minister in charge of finance to “implement tax policies and where appropriate, price policies on tobacco and tobacco products so as to contribute to the objectives of the Act”.

Additionally, the TC Regulations 2014, in Section 32 prohibit a public authority from granting incentives, privileges, benefits or any other preferential treatment to the tobacco industry to establish or run their businesses.

Section 33 (1) of the Regulations further state that “A public authority shall, while implementing investment and tax laws, and other polices related to tobacco, be guided by the priority to tackle the adverse health, social, economic and environmental impacts of tobacco growing, manufacture, sale and consumption in Kenya”. Sadly though, these provisions are at risk of being flouted if the proposals by BAT are granted.

In the past five years, Kenya has made significant progress in reforming, establishing and implementing tobacco tax structures in line with recommendations of the WHO-FCTC.

As such, through concerted advocacy efforts by CSOs led by the International Institute for Legislative Affairs (IILA) and with goodwill and leadership from Ministry of Health and KRA; Kenya has continued to make efforts towards increasing taxes on tobacco products in order to reach the threshold recommended by WHO.

Even though there is still a lot that needs to be done; for instance harmonising the current two tiers applied to cigarettes into one and further increasing the tax rate; the gains made so far should not be watered down but built upon to strengthen public health protection by eliminating initiation, reducing consumption of tobacco products and their access, especially among the youth.

In order to stand up to its commitment to promote public health as well as obligations under the WHO-FCTC and national TC policies, the government of Kenya should instead take the necessary measures to ensure effective implementation of these policies.

Notably, the government needs to implement recommendations given under the FCTC Article 5.3 and its guidelines, which require Parties to not grant incentives, privileges or benefits to the tobacco industry to establish or run their businesses as well as to not provide any preferential tax exemption to the tobacco industry.

Specifically in regards to the nicotine pouches (and any other emerging tobacco and nicotine products) the government should consider applying WHO recommendations on nicotine delivery products such as banning or restricting use of flavours that appeal to minors; as well as prohibiting implicit or explicit claims that the products are harmless or safer unless approved by a specialised governmental agency.

Lastly, on aspects of taxation; considering that these products and cigarettes are substitutes, differential tax policies based on product type could lead to substitution between the products; hence high tax rates should be applied on such products so as to make them unaffordable to minors to deter initiation and use.

Celine is the current acting CEO of the International Institute for Legislative Affairs