Lottery winners to surrender 20pc of earnings to taxman

Winners of lotteries must now part with a fifth of their prize money following the coming into force of a new law that introduces a tax charge on such earnings.

The Finance Act 2013 imposes a 20 per cent withholding tax on all winnings from gaming and betting activities, giving the government a piece of the gambling pie.

The Kenya Revenue Authority (KRA) has backdated the new law to January 1, 2014, creating a logistical nightmare for gaming promoters who must now trace those who have won in the past 13 days and remit the taxes.

“Such winnings, whether payable in cash or kind, shall be subject to withholding tax at the rate of 20 per cent of the gross proceeds if paid in cash or 20 per cent of the fair market value of the winnings if paid in kind,” KRA said in a notice published on Monday.

“Payers of the winnings will be required to deduct the withholding tax with effect from January 1, 2014 and remit the same to the commissioner by the 20th of the subsequent month.”

This means the winner of a Sh1 million jackpot will take home Sh800,000 after surrendering Sh200,000 to the taxman. If the prize won is an
Isuzu pickup truck worth Sh2.5 million, the winner will have to part with Sh500,000 — equivalent to 20 per cent of the car’s value — before driving off with the award.

The Treasury has gone after gamblers’ prize monies in a bid to plug the funding gap in Kenya’s ambitious Sh1.6 trillion Budget, which is under pressure from a rising public wage bill and increased demand for funding from the 47 devolved units.

READ: Taxman catches up with gamblers

The government appears to have placed high bets on sin taxes – introducing tax on lottery winnings, raising excise duty on keg beer and increasing taxes on tobacco.

Other tax measures introduced by President Uhuru Kenyatta’s Jubilee government include 16 per cent VAT charged on previously zero-rated goods, nine per cent fringe benefits tax and raising royalties on minerals, including Sh140 per tonne of cement.

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

BLCB acting director Charles Wambia said his agency was discussing with KRA how to roll out withholding tax on winnings.

“We are talking to KRA about how it will be implemented,” said Mr Wambia without providing any further details.

BCLB allows all forms of gambling including online betting whose growth is linked to the fact that seven out of every 10 Kenyans have access to an Internet-enabled mobile phone that offers them easy access online.

Kenya’s gambling industry is dominated by casinos, SMS lotteries run by mobile service providers, sports betting, and lotto firm Kenya Charity Sweepstake.

Consulting firm PricewaterhouseCoopers (PwC) expects the new windfall tax to slow down growth in Kenya’s gambling industry whose revenues have doubled in the past five years.

“In other countries, such taxes have often had a dampening effect on wagering, and we expect that the same will occur in Kenya as well,” said PwC in a report published late last year.

Casinos conducted gambling business worth Sh1.6 billion ($19.5 million), according to PwC but are now expected to miss the projected Sh2.8 billion ($33 million) in 2017.

The government earned Sh255 million ($3 million) last year in taxes and levies from the casino sub sector but this could more than double under the new tax regime.

PwC ranks Kenya’s casino market – with 13 licensed operators – as the second biggest in Africa after South Africa with 37 authorised firms. Nigeria has only three licensed casino companies.

The Association of Gaming Operators - Kenya (AGOK), the industry lobby for casino operators, said none of its members had deducted withholding tax on winnings in the past 13 days due to lack of a framework to implement the directive.

“We have not been deducting this tax because there have been no guidelines from KRA,” said David Moshi, the AGOK chairman.

“Given the nature of the gambling industry, there will be a lot of challenges in collecting this tax.”

This is because most roulette, blackjack tables and table slot machine gamblers do so without revealing their identities, making it hard to tax them.

To comply with the tax requirements, casinos will have to unmask these faceless characters who mostly indulge in gambling as a pastime.

Mr Moshi said the casinos in Kenya employ more than 4,000 people and the new tax measure may slow business and lead to job losses.

READ: Casinos seek tax exemption on gamblers’ winnings

KRA has not set a minimum threshold on winnings that qualify to be taxed, meaning players in sports betting and SMS lotteries that involve small amounts of money will also have to pay withholding tax.

Gaming International, a sports betting company, set up shop in Nairobi in January 2012 seeking to tap into Kenya’s near-fanatical following of the English Premier League and other soccer competitions.

The company is based at Odeon Plaza on Tom Mboya Street and offers prize money from as low as Sh100 for those who correctly predict the scores in a soccer game.

It shows live broadcasts of major sporting events, including soccer, Formula One, boxing, cricket, tennis, basketball, cricket, rugby and athletics, where the public is allowed to place bets.

READ: Sports betting comes to Kenya

This means winners of Sh100 will take home Sh80 and Gaming International will have to remit Sh20 to the taxman as withholding tax.

Kenya’s first online gambling site — www.BetKenya.com — was launched in 2011 but closed down in less than a year. It was backed by Amaya Gaming Group Inc, a company listed on the Canadian TSX Venture Exchange.

Other players in Kenya’s online betting industry are www.justbet.co.ke, www.lucky2u.co.ke and www.kenyasportsbet.com.

There has also been increased uptake of SMS-based lottery, especially with promotions run by the Kenya’s four telecom firms, premium rate service providers and radio and TV stations, which run text and win competitions.

Safaricom last year ran a lottery dubbed ‘Tetemesha Na Safaricom’ in which the ultimate jackpot was Sh10 million and a pickup truck. Airtel Kenya also ran ‘Vurumisha Mamili na Airtel’ in 2013 where two winners walked away with a grand prize of Sh5 million.

If the Finance Act was in force at the time of the Safaricom competition, the winner would have paid KRA Sh500,000 to drive away with the pickup valued at Sh2.5 million.

In the Airtel Kenya promotion, the victor’s take-home would be Sh4 million after KRA deducts withholding tax.

The taxman would also have demanded a share of the spoils in the 2013 Nation Media Group’s ‘Utahama Roundi Hii’ competition where Daily Nation readers won three apartments at Next Gen, a mixed-use development off Mombasa Road.