Betting firms to pay taxes daily as KRA tightens nooseThursday January 12 2023
Betting companies must now pay taxes daily by 1am in far-reaching changes that have seen the taxman plug into their platforms to allow real-time computation of taxes, as the government moves to tame rogue entities in the sector.
The Kenya Revenue Authority (KRA) has completed a pilot that saw it interlink its tax system with the betting sector to track the 15 percent tax on betting, gaming and lottery as well as the 20 percent withholding tax on winnings collected from punters every day.
The integration of the systems was one of the reforms under the revenue administration, said Treasury Principal Secretary Chris Kiptoo.
Speaking on the first day of a public hearing on the Financial Year 2023/24 budget, Dr Kiptoo said that KRA had made these improvements on tax administration for optimal collection.
READ: Taxation on winning bets drops by Sh1.4 billion
Dr Kiptoo said these improvements include “implementation of a new Web-based improved VAT System; integration of KRA system with the Betting Sector and mapping of rental properties.”
With the Treasury projecting to collect Sh15 billion from betting this year, this means that KRA targets to haul Sh41.1 million from betting firms every day.
This is part of the taxman’s new digital strategy to increase tax compliance as the government eyes a bigger slice of the billions made from the gambling craze.
The KRA has linked its systems with those of around seven sports gaming firms, in what is aimed at sealing the loopholes of tax leakages that were exacerbated by the 30-day time lag.
All the tax heads are normally paid after 30 days. However, the betting companies have been remitting the taxes they collect every day by 1am when a lot of Kenyans stop betting.
SportPesa, one of the sports gaming companies that piloted the interlink, confirmed that they were already paying taxes.
“They (KRA) can see the transactions because it is interlinked,” a spokesperson from SportPesa confirmed, adding that the companies will also begin remitting data to the KRA.
After the pilot, the KRA requested to plug its systems into seven other firms. Those that fail to comply have been threatened with a shutdown, a source said requesting to remain unnamed.
The KRA said it collected Sh5.67 billion in withholding tax from winning bets in the period under review, reflecting a drop of 19 percent from Sh7.09 billion a year earlier.
The drop can be attributed to a reduction in winnings or a decline in the number of bets placed. The taxman takes withholding tax that is calculated at 20 percent on a win after deducting the amount staked.
The government also re-introduced a 7.5 percent tax on every betting stake, meaning for every Sh100 staked, the taxman takes Sh7.5.
Data from the KRA shows that tax on gross gaming revenue rose 13 percent to Sh3.294 billion in the year ended June from Sh2.907 billion a year earlier.
The KRA had estimated that it would collect Sh15 billion from betting, lottery and gaming.
In the Financial Year 2019/20, before the crackdown, the taxman collected Sh9.3 billion in taxes from betting activities.
Gaming is popular among the youth with some funding their betting addiction through easy-to-access digital loans. The jobless have also turned to the craze in the hope of striking it rich and paying their daily bills.
Safaricom revealed that punters pushed Sh169 billion through M-Pesa to bet in the year ended March, translating to Sh469 million per day, highlighting the extent of the habit that prompted strict regulation and increased taxation.
This comes at a time the tax agency is also migrating traders to a new electronic register that captures and sends to the taxman all transactions, especially invoices, in real time in the latest strategy to nab cheats.
The KRA, which surpassed its target for the Financial Year 2021/22, is under pressure from the new administration of President William Ruto to better its collections in the current and subsequent fiscal calendars, an uphill task due to a depressed economic environment which has seen investors spooked by a looming global recession.
With the new Tax Invoice Management System (TIMS), an upgrade of ETR, there will be the real-time transmission of data directly to KRA’s digital system-- the iTax-- at the touch of a button.
With TIMS, if a supplier invoices a customer, the information goes to your iTax account and that of the customer, ruling out a discrepancy.
“I suppose that is the same thing they are trying to do with betting,” said Nikhil Hira, Partner, Kody Africa LLP.
On rental income, the taxman has deployed the latest mapping technology in addition to accessing bank records on rented and utility transactions with utilities such as Kenya Power.
The KRA is implementing a block management system that will use a geographic information system (GIS) to map out buildings, a top official said.
READ: Gamblers lose bid to stop 7.5pc tax on stakes
This system classifies various estates into blocks of flats where the taxman will identify landowners who are tax-compliant and detect new buildings.
As part of its wider strategy to expand the tax base, the KRA has noted that it will rely more on technology and has been looking for information, identifying people who are earning and living large and not paying taxes.
The taxman will also go after the hard-to-tax informal sector, looking for small businesses whose gross turnover is more than Sh1 million but less than Sh50 million in a year.