Betting firms inflating sponsorships to avoid taxes

Kenya Revenue Authority (KRA) domestic taxes chief manager Miriam Sila addressing journalists in Nairobi on taxation in the betting sector on March 28, 2023. PHOTO | FRANCIS NDERITU | NMG

Betting firms have been flagged for inflating costs of sponsorships and community projects to reduce their tax burden, denying the country millions in corporate taxes.

The Kenya Revenue Authority (KRA) says most betting companies claim to support local football clubs and other charities as part of their corporate social responsibility (CSR) to legally shield themselves from paying their dues, as such funds are not taxed.

KRA chief manager of domestic taxes, Miriam Sila, said Tuesday that the agency barely collects corporate income taxes as most of these companies report losses.

Ms Sila noted that betting firms have been seeking tax exemptions for their CSR from the Treasury Secretary. “And it is not small money. Once you have received the exemption from the Cabinet Secretary, who are you to question?” Ms Sila posed.

The court has since termed the tax breaks’ nod Treasury unconstitutional without the approval of Parliament.

Withholding tax

KRA says the tax breaks have been running into hundreds of millions and going on for as long as six years.

“This reduces the corporation tax,” said Ms Sila.

The law also allows gaming operators to enjoy exemptions from withholding taxes on advertisements, which the taxman says they are overstating.

“There is also a tendency to inflate advertising costs,” said a KRA official who sought anonymity. 

While it is not mandatory for the operators to financially support local sports clubs, they are expected to show how they spend on CSR activities.

Last year, Betting Control and Licensing Board (BCLB) chief executive Peter Mbugi directed all gaming operators to disclose activities, amounts and beneficiaries of their corporate social responsibility spending.

Mr Mbugi noted that while most of the firms claimed their marketing spend is CSR or pledge to support local football clubs and community projects, they did not actually spend the money.

Some betting companies make supernormal profits, with a recent revelation that SportPesa made a net profit of Sh12.9 billion for its owners in Kenya in its first five years of operation, underscoring the lucrative business.

Kenya betting laws do not specify how much companies should spend on CSR activities unless they are public lotteries raising funds for social services, welfare and relief of distress.

BCLB has the authority to order public lotteries to spend at least 25 percent of the gross proceeds on the object for which the lottery is promoted.

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Note: The results are not exact but very close to the actual.