Economy

Betting houses win reprieve over withholding tax

win

Past winner of a Kenya Charity Sweepstake lottery, Jeniffer Karimi, displays her dummy cheque. KRA last month said that all winnings will be considered as income, taxable at the rate of 20 per cent of the worth of the windfall. FILE

Betting houses have won a reprieve from the High Court stopping Kenya Revenue Authority from levying a 20 per cent withholding tax on winnings pending determination of a suit challenging the charges.
Justice David Majanja stopped the tax which came into effect on January 1, following enactment of the Finance Act.

This prompted 41 operators of gaming and betting shops to move to court arguing that they were not consulted before the law was passed.

“Pending the hearing and determination of this petition inter parties, this court be pleased to grant a conservatory order by way of a temporary injunction restraining KRA from levying 20 per cent withholding tax on winnings from gaming and betting as defined in the Finance Act, 2013,” reads Justice Majanja’s orders.

KRA last month said that all winnings would be considered as income, taxable at the rate of 20 per cent of the worth of the windfall.

The first payment of the taxman by the gaming and betting companies was due Thursday and subsequently the 20th of every month. The case will be heard on February 27.

READ: Lottery winners to surrender 20pc of earnings to taxman

The petitioners list the Attorney-General, Principal Secretary Ministry of Finance and KRA as respondents.

The firms also list Commission on Revenue Allocation; and Betting, Control and Licensing Board (BCLB) as interested parties. The betting and gaming firms argue that it is impossible to collect the tax from players due to varying player habits.

Taxed twice

Under the Fourth Schedule of the Constitution betting falls both under the national and county governments. The petitioners say there is a risk of them being taxed twice.

The firms further argue that the tax will lock out tourists who participate in gambling since such short time visitors lack details such as personal identity, a requirement before participating in gaming activities.

They also fear that the new tax will lead to the mushrooming of illegal betting and gaming establishments which they say can lead to registered casinos closing shop.

Following the announcement last month, sponsors of promotions indicated that they would stop offering material prizes for fear that winners might not afford the withholding tax.

That the tax was back-dated to January 1, 2014 also presented a logistical nightmare for gaming promoters to trace past winners and remit the taxes.

Kenya’s gambling business is regulated by the Betting Control and Licensing Board (BCLB), which issues firms with permits to run public lotteries and validates the selection of winners in competitions.

The agency is yet to develop regulations on how the newly introduced windfall tax will be implemented.

Kenya’s betting industry is dominated by casinos, SMS lotteries run by mobile phone service providers, sports betting, promotions by corporate firms and lotto company Kenya Charity Sweepstakes.