Discussion Paper No. 252 of 2021 on Appraisal of Kenya’s Excisable Goods Management System: A Case of Cigarettes and Cigars Excise Revenues

Abstract

The Government of Kenya introduced the Excisable Goods Management System (EGMS) in November 2013, which is a form of Track and Trace Systems (TTSs) for excisable goods, including cigarettes and cigars. This study appraised the EGMS with a focus on its impact on cigarette and cigars excise revenues and control of related illicit trade in Kenya. Illicit trade in cigarettes and cigars poses significant health risks owing to increased access to tobacco products, besides contributing to loss of government revenue. The study used an Interrupted Time Series Analysis (ITSA) to assess the impact of the EGMS on monthly cigarette and cigars real excise revenue. Review of other countries’ experiences in implementation of TTSs provides additional insights to enhance implementation of EGMS. The ITSA results indicate that implementation of the EGMS contributed to an effect that occurred at a fixed point in time (or a pulse effect) and shows evidence of a positive effect on the post intervention trend of real excise revenues for cigars and cigarettes relative to its pre-intervention trend. A level change in revenues is, however, not supported by the results. With respect to illicit trade, a one-off jump in declared production of cigarettes and cigars in 2014 suggests waning levels of illicit tobacco products. It would be important that the EGMS is reviewed continuously for performance to deal with probable metamorphosis of tax evasion.