Economy

Treasury brings back 20pc tax on betting

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Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • The Treasury is seeking to reintroduce excise duty on betting at a rate of 20 percent of the amount staked, a move that could see punters contribute billions of shillings to the exchequer annually.
  • The tax was introduced in 2019 but was removed in July last year through amendments to the Finance Act 2020 following lobbying by betting firms.
  • Treasury Cabinet Secretary Ukur Yatani initially vowed to bring back the tax within six months.

The Treasury is seeking to reintroduce excise duty on betting at a rate of 20 percent of the amount staked, a move that could see punters contribute billions of shillings to the exchequer annually.

The tax was introduced in 2019 but was removed in July last year through amendments to the Finance Act 2020 following lobbying by betting firms.

Treasury Cabinet Secretary Ukur Yatani initially vowed to bring back the tax within six months.

“Excise duty on betting shall be twenty percent of the amount wagered or staked,” says the Finance Bill 2021.

If enacted into law, the Kenya Revenue Authority (KRA) will take Sh20 out of every Sh100 wagered regardless of whether the punter wins or loses.

It will expand the list of taxes levied on the betting industry and punters.

Betting firms are currently required to withhold 20 percent of winnings and remit the same 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 betting companies themselves 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.

The reintroduction of the excise tax is set to erode the firms’ revenues and hurt their firms’ profitability.

With a smaller revenue base from which to pay the turnover tax and deduct other expenses like technology and payroll, betting firms’ earnings look set to take a major hit.

The excise tax reinforces the government’s view that the betting industry has harmed a major part of the population, especially the youth, and must be tamed through taxation and other regulations.

“Following various consultations and in line with the government’s commitment on mitigating against the social vices associated with betting activities, the National Treasury and Planning will be proposing to the National Assembly, the reintroduction of the excise duty on betting within the next six months,” Mr Yatani said in a statement on July 2, 2020 following the removal of the levy.

The scale of betting craze came to light last year when Pevans East Africa –which operated under the popular SportPesa brand— disclosed that it recorded revenues of Sh150 billion in 2018 alone.

This indicates that the excise tax alone could earn the KRA a conservative Sh30 billion annually. The taxman could rake in more than Sh40 billion annually from all the taxes levied on punters and betting firms.

Pevans 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 where they also hold shares.

The transfer of the brand was not authorised by the board of Pevans, according to Paul Ndung’u who owns a 17 percent shareholding and claims he was left out of the transaction.

It is not clear whether Milestone’s financial performance has matched or exceeded that of Pevans. Milestone has, however, faced many challenges, including battles with the Betting Control and Licensing Board (BCLB) and Airtel Kenya, which has refused to assign it short codes and paybill numbers.

Sports betting is popular among the youth, some of whom fund their addiction by taking loans from banks and digital lenders. There have also been reports of punters committing suicide after losing all their money.

Churches have been at the forefront of lobbying the government to rein in the betting craze.

It remains to be seen whether Parliament will allow Mr Yatani to reintroduce the excise tax, with betting firms once again expected to lobby lawmakers to defeat the proposed amendment.

The Executive, which has had its way on even more controversial tax hikes, was blindsided by the removal of the excise tax on betting last year.