KRA suffers Sh1.9bn revenue loss on new gaming concessions

Collections from betting and gaming tax fell by Sh1.873 billion in the financial year ended June, 2019, after the Treasury caved in to pressure to lower the rate to 15 percent from 35 percent of gross earnings.

The Treasury had last year agreed to lower the rate charged on revenue generated from betting, gaming, lotteries and prize competitions by slapping a new 20 percent tax on winnings.

“The amendment was meant to enhance equity and fairness in the sector by distributing the tax burden fairly between winnings (20 percent) and operators (15 percent),” the Kenya Revenue Authority (KRA) says in a report to the National Assembly’s committee on Finance and National Planning. The taxman did not reveal actual collections.

The operators had protested the higher tax, enforced from January 1, 2018, arguing it would push them out of business and create a black market especially for betting.

Before January 1, 2018, lotteries were taxed five percent of gross sales, betting firms were charged 7.5 percent, casinos (12 percent), while competitions such as raffles paid 15 percent tax on gross revenues, besides other charges such as corporation tax on profit at the rate of 30 percent.

Pambazuka National Lottery was the first casualty of the higher gaming tax regime after it closed down Kenyan operations in January 2018, about 18 months after it was launched.

The Treasury had targeted Sh25 billion new revenue from the 20 percent deductions on winnings and 15 percent gaming tax on gross earnings by the operators in the financial year through June 2019.

KRA, however, struggled, netting taxes on bet winnings, and only collecting close to Sh1.66 billion as a result of a protracted legal dispute on what constitutes winnings. Previously, the betting firms were expected to withhold 20 percent of the positive difference between winnings and the amount staked.

But the Finance Act 2018 Tax Laws (Amendment) Act required the betting firms to withhold 20 percent of the gross winnings (stakes and winnings). “The implementation of the tax was challenged by the industry in court and the (tax) tribunal on the basis that tax should apply to the net winnings and not the gross winnings paid out,” the taxman says. “The court concurred with the KRA that the tax applies to the gross amount.”

The fallout over tax “non-compliance” was part of the reasons for suspension of operating licences for 27 betting firms at the end of June when they up for annual renewal by the Betting Control and Licensing Board (BCLB).