Economy

Gamblers lose bid to stop 7.5pc tax on stakes

betting

Gamblers follow their bets at a betting shop in Nairobi. FILE PHOTO | NMG

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Summary

  • Betting firms and a group of gamblers have lost their bid to quash a 7.5 percent excise duty imposed on cash they have set aside in their wallets for gaming.
  • The tax compels betting firms to withhold and forward Sh75 out of every Sh1,000 wagered regardless of whether the punter wins or loses.
  • The Treasury has sought Parliament’s approval to increase the tax to 20 percent from July 1 in efforts aimed at curbing the practice that has become a near national pastime.

Betting firms and a group of gamblers have lost their bid to quash a 7.5 percent excise duty imposed on cash they have set aside in their wallets for gaming.

High Court judge George Odunga dismissed a petition filed by the punters and betting firms stating that levying excise duty on stakes is proper and lawful.

The judge further dismissed claims by the petitioners that imposing the excise duty amounts to double taxation since they pay 20 percent withholding tax on winnings and a further 15 percent tax on the gross gaming revenue.

The tax compels betting firms to withhold and forward Sh75 out of every Sh1,000 wagered regardless of whether the punter wins or loses.

The Treasury has sought Parliament’s approval to increase the tax to 20 percent from July 1 in efforts aimed at curbing the practice that has become a near national pastime.

“I have found that in betting transactions, it is proper to levy excise duty on the stake,” Justice Odunga said.

The gamblers, who triggered the suit, claimed the introduction of the extra tax of 7.5 percent on top of the 20 percent tax imposed on all winnings amounted to double taxation.

Justice Odunga, however, said excise duty is a different levy from withholding tax.

“Whereas the two taxes may well impose burdens on the taxpayer, that does not make them unconstitutional,” the judge said.

The judge found that the issue of double taxation does not arise since the excise duty (paid at the point the punter places the stake) and the withholding income tax (paid upon winning) are two distinct taxes paid by different people.

The betting firms, including Betika, Betway, Odibets, Sportpesa, MozzartBet and Association of Gaming Operators, were enjoined in the suit against the Kenya Revenue Authority (KRA) and Parliament.

The firms argued that investors and gamblers felt discriminated against because other similar deposits like M-Pesa and bank accounts were not subjected to tax on funds saved on the platforms.

The KRA says the stake is the charge for participating in a bet, a lottery or a game and that it allows the punter to participate in a bet and places them in a position to gain or lose.

This is the second year in a row that the Treasury is seeking to return the 20 percent duty on the amount staked after MPs shot down a similar bid in the Finance Bill 2021, and reduced the duty to 7.5 percent.

The proposed 20 percent tax will apply from July 1 if passed by the MPs before the House breaks on June 9 ahead of the August elections.

Gamblers also pay a 20 percent tax on winnings that betting firms are 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.

This is besides corporate income taxes levied on the gambling and gaming business.

The betting industry has become one of the targets for ‘sin’ taxes, which the government levies on goods and services considered harmful, costly to society or morally suspect.

Sports betting is popular among the youth, with some funding their gaming addiction with a stream of loans from banks and digital lenders.

There have been reports of punters committing suicide after losing money.

Betting is popular among young people, who see it as offering a game-like thrill besides an opportunity to make quick money.

Missed opportunities

While a few punters get lucky and win large sums of money, the activity represents missed opportunities and losses for participants as a whole.

But the mounting taxes on punters and gambling firms have failed to derail betting.

Disclosures by Safaricom #ticker:SCOM , for instance, showed that the value of bets through M-Pesa jumped 69 percent to Sh83.2 billion in the six-month period ended last September compared to Sh49.2 billion the prior year.

The volume of bets funded from M-Pesa accounts climbed 84.7 percent to 347.8 million in the six months.

The full scale of gambling in the country is unclear, but the bets funded from M-Pesa accounts are expected to represent the majority of the activity given the platform’s dominance in personal payments at more than 95 percent.

Betting firms licensed to operate in Kenya increased 31.5 percent last year, defying the government policy to reduce gambling.

The firms increased to100 from 76 in 2020, says the Betting and Licensing Control Board (BCLB).

Among other goods subject to ‘sin’ taxes are alcohol, cigarettes and sugary drinks and food.

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