Betting firms ignore new 7.5pc tax on stakesWednesday July 07 2021
Betting firms have failed to collect a 7.5 percent tax on the amount staked following the imposition of the new levy on July 1, setting the stage for a clash with the Kenya Revenue Authority (KRA).
A spot check on a number of betting sites showed that gamblers were not having the new tax deducted on their betting stakes.
The 7.5 percent excise duty is contained in the Finance Act, 2021 that was signed into law on June 30.
The betting firms are required to withhold and transfer to the KRA Sh7.50 out of every Sh100 wagered regardless of whether the punter wins or loses.
“Taxation is a mandate of KRA. They will communicate to them on when it will take effect,” the Betting Control and Licensing Board (BCLB) principal gaming inspector Esther Argwings told the Business Daily.
Gamblers also pay a 20 percent tax on winnings that betting firms are currently required to withhold and remit to the taxman.
This means that if one wins Sh10,000, he or she will receive Sh8,000 as the KRA takes Sh2,000.
The excise tax on betting stakes was introduced in 2019 but was removed in July last year through amendments to the Finance Act, 2020 following lobbying by betting firms.
But the Treasury reintroduced the tax through the Finance Bill, 2021, targeting billions of shillings annually from the lucrative industry.
Parliament, however, reduced it to 7.5 percent, saying the current taxation regime for betting is too high and has put off investors.
The reintroduction of the excise tax is set to erode the firms’ revenues and hurt their profitability. Betting firms are taxed on the gross gaming revenue – turnover minus winnings paid out— at a rate of 15 percent.
They also pay corporate tax on profits at a rate of 30 percent.
“With the reintroduction of the excise duty on betting at 7.5 percent, the country may experience an exit from the market of the key industry players citing an unsustainable and unfavourable business environment,” says consultancy firm KPMG.
A section of betting firms, including Sportpesa and Betika, have in the past been locked in tax disputes with the KRA, leading to the withdrawal of their licenses in 2019.
The KRA had demanded Sh61 billion in unpaid taxes from the betting firms in 2019, triggering lawsuits as the firms disputed the claims.
BCLB then revoked the licences of at least 10 firms, including SportPesa and Betin Kenya, citing non-compliance. Others were Premier Betting Kenya Limited, Gameco LLP, Magic Slots and Cheza Gaming Limited.
Sportpesa, registered as Pevans East Africa, ceased operations in October 2019 following the KRA’s demand that it pays tax amounting to Sh15 billion. The taxman has adjusted the figure to a staggering Sh95 billion.
The SportPesa brand was, however, brought back in October last year under a new company called Milestone Games Limited.
The owners of Milestone, including Ronald Karauri, controversially made moves to transfer the SportPesa brand from Pevans East Africa where they also hold shares.
Sports betting is popular among the youth, with some funding their gaming addiction by taking loans from banks and digital lenders. There have also been reports of punters committing suicide after losing all their money.