Growth in excise tax collections from key drivers such as alcohol, motor vehicles, and voice calls more than halved in the first half of the current financial year, signalling a loss of momentum in one of the government’s most dependable tax streams.
Data by the Treasury shows that excise receipts for the July–December 2025 period rose by a modest 4.31 percent to Sh223.4 billion from Sh214.2 billion a year earlier. This growth marked a steep decline compared to the 11.72 percent recorded in the same period of the previous financial year 2024/25.
The slowdown highlights the weakening consumption of some of the excisable goods and services, which include alcohol, mobile money transfers and internet usage, suggesting that recent policy-driven gains in excise revenue are fading.
Excise duty targets a wide consumption basket, including alcoholic drinks such as beer, wines and spirits; tobacco products like cigarettes and nicotine substitutes; and petroleum fuels including petrol, diesel and kerosene.
These collections also incorporate petrol and diesel-linked levies such as the Road Maintenance Levy (RML) charged at Sh25 per litre and the Petroleum Development Levy (PDL) at Sh5.40 per litre, as well as the electricity levy, further anchoring fuel and energy as key revenue drivers.
The tax also applies to luxury items such as motor vehicles — whose rate ranges from 25 percent to 35 percent depending on engine capacity and age — and selected electronic equipment such as mobile phones and television sets, which together form a significant share of excisable consumption.
On services, excise extends to telecommunications such as voice calls and internet data, as well as financial transactions including mobile money transfers and bank charges, alongside betting and gaming winnings.
The Treasury in its Budget Review and Outlook Paper 2025 acknowledged weaknesses in revenues from beer and spirits following a policy shift from a specific rate per litre to a tax rate based on centilitres of alcoholic drinks (which started late-December 2024) and remittance from manufacturers of products such as tobacco, bottled water, and soft drinks.
The slowdown in the half-year excise duty streams, therefore, signals softer demand across some sectors, largely those most sensitive to price increases and repeated tax adjustments.
Companies have also reported mounting pressure from shifting consumer behaviour and illicit trade.
East African Breweries Plc said in its annual report for 2025 that regulatory changes, including the shift from volume-based to Alcohol By Volume (ABV)-based excise taxation in Kenya, introduced cost headwinds.
The brewer also flagged that the rapid expansion of illicit alcohol continues to be a growing threat to legitimate sales volumes.
“The rise of illicit alcohol, now accounting for 60 percent of Kenya’s total alcohol market (a 27percent increase since 2022, according to the 2025 Euromonitor Report), continues to distort the playing field, requiring intensified efforts in enforcement, advocacy, and consumer education,” EABL wrote in the report to shareholders.
This added to the shifting consumer behaviour, notably increased downtrading [switch from expensive to cheaper brands], has put pressure on the firm’s revenue performance.
Similarly, British American Tobacco (BAT) Kenya Plc pointed to rising illicit trade as a major drag on both industry performance and government revenue collections.
The firm said illegal cigarettes now account for about 45 percent of the domestic market, up from 37 percent a year earlier, highlighting the rapid growth of untaxed products.
“This illicit activity not only undermines industry revenues but also deprives the government of an estimated Sh12 billion annually,” BAT said, underlining significant revenue leakages in one of the most heavily taxed sectors.
The disclosures from the two firms — dominant players in alcohol and tobacco — highlight structural challenges undermining excise growth, including tax avoidance through illicit channels and shifts in consumer purchasing behaviour.
These trends suggest that even as tax rates rise, actual taxable volumes may be stagnating or declining in key segments of the economy.
After a strong rebound in the fiscal year 2021/22, when excise collections grew by nearly 20 percent in the first half following the Covid-19 shock, growth has since moderated.
A temporary rebound was recorded in financial year 2024/25, but the latest figures suggest the underlying trajectory has returned to a slower, more constrained growth path.
This has come at a time when household budgets have tightened amid the elevated cost of living, which has forced consumers to cut back on both essential and discretionary spending.
The slower growth in part reflects reduced usage of taxed goods and services because excise taxes are directly tied to consumption.
For instance, repeated tax increases on alcohol and tobacco products tend to suppress consumption volumes over time, particularly as consumers shift to cheaper or illicit alternatives.
