SportPesa has stopped a Sh600 million local sports sponsorship deal following the imposition of higher gaming taxes in a move that will hurt football clubs, rugby and boxing.
The betting firm Tuesday said the 35 per cent gaming tax that took effect on Sunday midnight will hurt its revenue.
SportPesa inked a five-year sponsorship deal with Football Kenya Federation in a deal that has seen it foot the salary of Harambee Stars Belgian coach Paul Put and FKF’s technical director, Andreas Spiers.
Other sporting entities with SportPesa sponsorship agreements include the Kenyan Premier League, football clubs Gor Mahia, Nakuru All Stars and AFC Leopards, and Kenya Rugby Union and Boxing Federation.
“For us to be able to continue operating as a business and keep our employees, we have no choice but to cancel all the sponsorships to our local sports partners,” said SportPesa CEO Ronald Karauri in a press briefing on Tuesday.
SportPesa lost a court case seeking to stop the government implementing a new higher gaming tax, but has issued a notice of appeal.
Besides the 35 per cent tax on revenues, betting firms pay 30 per cent corporate tax and dedicate 25 per cent of their sales to social causes like sports sponsorship as a legal requirement before taking care of winnings and other operating expenses.
“The total deductions come to more than 100 per cent because 50 per cent is paid out as prizes and not counting costs. So no lotter can really do business,” said Mr Karauri.
Until Sunday, lotteries were taxed at five per cent of their sales, betting firms at 7.5 per cent, casino gambling at 12 per cent and competitions like raffles at 15 per cent besides other taxes and levies.
Betting firms say the tax hike will kill the fledgling industry and hurt supporting businesses including telecoms and media companies, which benefit from advertisements from the firms.
Safaricom #ticker:SCOM said mobile phone-based betting is driving revenue in its SMS business.
SportPesa reckons that the higher tax rate is in breach of Article 201 of the Constitution which demands that the public finance system promotes an equitable society where the tax burden is shared fairly.
Mr Karauri said the firm will make a return to sports sponsorship if the tax hike law is reviewed. “For now, we are optimising on our budgets. Should something change in the future then we will continue supporting the local sports industry,” he added.