Betting firms, KRA lock horns over move to impose 20% levy on winnings

Betting firms are up in arms with the Kenya Revenue Authority (KRA) over the move to impose 20 per cent withholding tax on all cash a punter wins including their stakes.

The reaction comes even as gamers were dealt yet another blow after Treasury Cabinet Secretary Henry Rotich introduced excise duty on betting activities at 10 per cent of the amount one places to bet.

“Betting has become widespread in our society and its expansion has had negative social effects, particularly to the young and vulnerable members of our society. In order to curtail the negative effects arising from betting activities, I propose to introduce excise duty on betting activities at the rate of 10 per cent of the amount staked,” Rotich said in his annual Budget Statement last Thursday.

Thus, should the new proposal get Parliament’s approval bettors will lose cash in taxes simply for betting regardless of whether they win or not.

For instance, a deduction of Sh20 will go to the exchequer for a person staking Sh200 ― meaning one will lose 10 per cent of cash each a bet is placed

But as the industry digests the new development, betting firms have clashed sharply with the taxman over taxing gamers, as staked amounts are not separated from the actual winnings as it’s the case at the moment.

Ordinarily, KRA taxes 20 per cent on winnings ― but leave out stakes in their calculations.

In a letter to the revenue collector a fortnight ago, betting giant SportPesa protested the current interpretations of winnings used by the authority.  For instance, a Copa America opening match on Saturday between Brazil and Bolivia had betting odds of 1.03 for a win in favour of hosts Brazil and 38.10 for Bolivia.

As such, a punter staking Sh1, 000 in favour of Brazil and it ends up winning would earn Sh30 on top of the initial stake, bringing the total amount to Sh1, 030 in the e-wallet.

But KRA’s interpretation of winnings charges 20 per cent tax on the entire amount including the bettor’s Sh1,000 investment hence the gamer will incur Sh206 in taxes leaving him with Sh824. This even eats up on the players initial money in the e-wallet, meaning that the player will lose cash despite placing a successful bet.

Underground betting firms

“This means the player has not reason even to play, he would rather play on sites that don’t charge tax, or simply go to underground betting firms shops where they can be paid the full amount,” argued SportPesa chief executive Ronald Karauri in a letter to KRA dated May 7.

Currently, a court order bars KRA from collecting some Sh10.3 billion withholding tax from SportPesa that it claims dates back three years.

But the betting firm has cited a court order issued in 2014 that stopped deduction of withholding tax from winners’ cash.

“There is a court order that stood in the way of implementing this tax. SportPesa would like to seek not only the best way to move this forward, but also open dialogue on the efficacy of this tax impact it would have on our business and KRA collections,” Karauri said.

Speaking to People Daily on phone, Karauri cautioned that the increasing punitive tax risked pushing them out of business.

Karauri, said SportPesa paid Sh400 million last year as withholding tax on winnings and paid Sh6.2 billion in total taxes the same year, that included betting tax, corporate tax, normal withholding tax and withholding VAT.

Betway chief executive officer Leon Kiptum told People Daily the firm was holding analysing how the new excise duty of betting activities will impact the industry.

“We will give a comprehensive statement,” he said.

Many governments in the world, who tax the gaming industry, only take a certain percentage of winnings, referred to as gross gaming revenue, which does not include the staked sum.

Most of the governments charge the gross gaming revenue of between 15 per cent and 20 per cent, based on winnings.

Tax experts have termed the new tax measure a bad bet for the economy.

PriceWaterhouseCoopers (Pwc) think-tanks have argued to tame the runaway multi-billion industry, the State ought to have bolstered enforcement of regulations governing the market.

“You don’t respond to inadequacies in regulation by increasing tax, that won’t achieve the intended purpose…you need to empower regulatory agencies,” said PwC partner in charge of the Tax and Immigration practice, Steve Okello.