Kenya: Treasury Hits Gamblers with 20% Winning Tax

Gambler on slot machine in Nairobi, Kenya

Kenya, April 20, 2018//-The Treasury yesterday gave the clearest signal yet that it will vigorously pursue gamblers for a share of the lottery and betting windfalls with a planned re-introduction of a 20 per cent tax on winnings.

The Tax Laws (Amendment) Bill 2018 seeks to restore the tax charged on betting winnings that was dropped in 2016 due to numerous hiccups in its implementation.

If passed, betting and gaming companies will withhold a fifth of the sums won by punters to be remitted to the taxman — piling additional tax burden on an industry that is already paying 35 per cent of gross earnings to the exchequer.

“The Bill seeks to amend the Income Tax Act to introduce a tax on winnings,” says the proposed law that was tabled in Parliament yesterday.

Tax experts said that should the Bill sail through, the taxman will demand that betting companies deduct and remit the 20 per cent withholding tax on every gaming win.

Fred Omondi, a tax consultant at Deloitte, said there should be clarity on how the windfall tax will be charged in cases where gamers win property like cars, as opposed to cash from which it’s easy to deduct the levy.

“The tax on winners was partly dropped because of tax administration and implementation challenges that the State is assumed to have studied and resolved,” said Mr Omondi.

Punitive

Gambling companies have described as punitive the 35 per cent levy on their revenues that took effect in January 2017.

The new tax saw Pambazuka National Lottery suspend its Kenya operations, while gaming giant SportPesa put on ice a Sh600 million sports sponsorship deal with local football, rugby and boxing clubs.

Pambazuka’s pullout meant loss of millions of shillings in potential revenues that would have accrued to the Kenya Revenue Authority.

Eight major players in the betting sector paid Sh4.7 billion in taxes over the three-year period ending 2016.

The Treasury reckons that the steep taxes are meant to discourage gambling, a pastime that is seen to be addictive and pushing thousands of youth into a debt trap.

Besides the 35 per cent tax on revenues, betting firms pay 30 per cent corporate tax and must dedicate 25 per cent of sales to charities as a legal requirement, before taking care of winnings and other operating expenses.

Kenya’s multi-billion shilling gambling industry is made up of sports betting operators, casinos and poker rooms, not only that but they also use the best gambling software, such as PokerSoftware. According to sbobetaa, poker rooms are some of the most popular in all casinos and now Poker is taking over online as well, there is a lot of competition when it comes to poker, Malaysian poker player ilsy168 has lost 20 million at online poker

Before the flat tax of 35 per cent was introduced, lottery firms were taxed at five per cent of sales, betting firms at 7.5 per cent, casinos at 12 per cent and competitions such as raffles at 15 per cent besides other taxes and levies.

Curb growth

Treasury secretary Henry Rotich said the government increased the taxes to curb exponential growth of gambling that was hurting the young and vulnerable.

Besides, failure to tax winnings was seen as merely forcing betting firms to absorb the huge tax burden, with little impact on individual gamblers.

“The re-introduction of tax on winnings is now expected to remove some shine off gambling, if that’s what Treasury seeks to achieve,” said Mr Omondi.

SportPesa said it expects authorities to clarify how the new tax will be charged.

More recently, increased taxation has seen betting firms such as Bet365, Betway and Betfair — whose services are accessible through websites — relocate their operations to the islands of Malta and Gibraltar where taxes on gaming revenue is capped at one per cent.

Besides betting firms, analysts reckon that a tax-induced slowdown could also hurt supporting businesses, including telecoms and media companies that benefit from daily advertisement of betting and gaming activities.

Rapid growth

Betting has expanded rapidly in recent years thanks to mobile phone-based financial services such as M-Pesa that allow users to deposit bets and receive winnings through the phone without a bank accounts.

Kenyan casinos early this year warned of looming mass shutdowns and thousands of job losses should authorities refuse to reverse the aggravated tax measures.

Consultancy firm PricewaterhouseCoopers (PwC) in January revealed that Kenya’s betting tax is the highest in the region, ahead of gaming hubs like the famed Las Vegas.

PwC says the 35 per cent tax on all gambling revenues is high compared to other African countries like South Africa, which charges 9.6 per cent, Rwanda (13 per cent) and Uganda (20 per cent).

businessdailyafrica.com

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