KRA sparks row with fresh tax demand on top athletes

The taxman’s demand that Kenya’s award-winning athletes pay tax at the top rate of 30 per cent has sparked fierce protest from the runners.

Also read: Treasury’s new tax plans shakes investor market

John Njiraini, the Kenya Revenue Authority (KRA) commissioner-general, said the tax demand is part of the renewed focus on rich Kenyans to help raise the revenue needed to finance rising government obligations.

“It is part of our focus on high net worth taxpayers and is being handled by the Eldoret office,” Mr Njiraini said.

The tax measures apply to all sportsmen but the athletes stand out because of the sport’s high profile in Kenya.

KRA’s fresh focus on sports income has elicited sharp reactions from athletes long used to filing returns at their own pleasure and to paying taxes voluntarily. 

KRA has already sent multi-million shilling tax demands to two athletes: World Marathon champion Abel Kirui and world women’s 5,000m silver medalist Sylvia Kibet, provoking Athletics Kenya (AK) boss Isaiah Kiplagat to complain of “harassment” of the sportspeople.

The taxman has sent Kirui a Sh12.8 million tax demand while Ms Kibet is required to pay Sh2 million.

On Thursday, Mr Kirui said the demand had come as a surprise, insisting that he has been paying his taxes promptly.

“I do not have a problem paying my taxes. In fact I am tax compliant but this latest demand has really shocked me because I did not expect it,” he said. “I have been taxed on all my earnings where I have participated and won cash awards.”

The duo has asked KRA for a meeting to discuss the demand.

Mr Njiraini said the athletes are only being asked to pay tax for money earned abroad based on the difference between the rates applicable in countries where they compete and the rates applicable in Kenya.

This means that if an athlete wins Sh100 million in a country where the income tax rate is 20 per cent, they are required to pay the remaining 10 per cent to KRA to be fully compliant with Kenya’s income tax rate of 30 per cent. 

Mr Njiraini introduced a new twist to the tax row by indicating that foreigners who stay in Kenya for half the tax year will be considered residents and will be taxed accordingly.

He said that many countries do not tax cash won in competitions at income tax rates, especially because participating Kenyan athletes are not residents and cannot be taxed as such.

In Kenya, for instance, the income tax is only applicable to people who have clocked 183 days of residence in a year.
Non-residents are charged the much lower withholding tax.

The athletes, most of who come from and invest around Eldoret, appear optimistic that the decision to tax them would be reversed.
“We will meet them and discuss the mode of payment. That is if they insist we pay,” said Mr Kirui.
KRA Domestic Tax Department commissioner Pancrasius Nyaga however maintained that sports income has always been taxable.
“It is a question of new emphasis. Some athletes have been making tax returns and paying taxes promptly,” he said.

Athletics Kenya (AK) has described the tax demand as unfair. Just like in the recent demand that landlords pay taxes on rent, affected taxpayers are likely to see it as new imposition although it is not.

“Our athletes have for a long time brought glory to this country including revenues through tourism and should, therefore, be left alone to enjoy the fruits of their labour,” said Mr Kiplagat.

“Why harass them to pay taxes yet they improve our foreign exchange by repatriating and investing foreign exchange here?”
He urged the government to intervene on their behalf, a point Mr Njiraini backs from a different point of view.

For anyone to be exempted, they need to be put in either of the two Income Tax exemption schedules, he said. “If we want to shield our athletes let’s put it in the law,” he said.

However, such relief would be short-lived because the Income Tax exemptions are next on the chopping board after the Value Added Tax Bill that is currently stuck in Parliament.

The changes are part of demands that the Bretton Woods institutions have been making on Kenya as part of fiscal reforms and are expected to come with the next Budget.

Some of the top athletes insist that KRA should focus on property taxes.

World 800 metres record-holder David Rudisha said the government should keep off prize money, arguing that the athletes take home only a small portion of the total amounts won.

“We are taxed where we win the races and our managers take a sizeable portion of the cash prizes. Taxing us again means taking nearly the entire income,” he said.
“An athlete who wins a race in the US, for instance, pays tax at the rate of about 35 per cent, our managers take 15 per cent. If we come here and pay another 30 per cent, we will be left with only 20 per cent of the money,” he said wondering whether competing will be worth it in such circumstances.
A senior deputy commissioner in charge of marketing and communication at KRA, Kennedy Onyonyi, said the athletes’ managers are also being targeted to pay tax on the 15 per cent income earned.

He allayed fears of double taxation saying only those who have paid foreign governments tax at rates less than Kenya’s 30 per cent are targeted.
“We are only targeting athletes who have paid less than 30 per cent tax in countries where they compete,” Mr Onyonyi said.

“As long as they are registered with AK, they have to pay tax at the rate of 30 per cent,” he said of agents.

Though the taxman is targeting all sportsmen, footballers like Dennis Oliech and MacDonald Mariga are already heavily taxed as residents in countries where they play. Besides, some countries have tax agreements with Kenya preventing double-taxation.

Other athletes said they should be left alone on account of their contribution to the economy.

“We bring money home to put up investments which are heavily taxed,” said Vivian Cheruiyot, this year’s Laurels Sports Woman of the Year Award winner. Former world marathon record holder Paul Tergat said Kenya needs to take a cue from Ethiopia which has exempted sportsmen from paying taxes.

The issue of sports and tax is not unique to Kenya. A similar debate broke out in the US after proposals to tax cash awards and the value of medals during the last Olympics.

In Spain, the struggling economy has raised the top tax bracket seven percentage points to 52 per cent with clubs like Barcelona widely expected to top up the pay for top-talents such as Lionel Messi to prevent them from moving to other countries.

KRA’s move could trigger a migration of athletes to tax friendly nations.

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