10,000 jobs at risk as 35 per cent tax hits casinos
Gaming operators in court last month for the hearing of a case in which they are seeking to have the government stopped from cracking down on their businesses. PHOTO | EVANS HABIL | NMG
Industry insiders said the economics of the business may not allow them to shoulder the extra tax burden, forcing them to close up shop.
Casinos have been paying a 12 per cent tax on turnover.
Sector players say they cannot absorb the 35 per cent tax on gaming revenue.
Kenyan casinos have warned of looming mass shutdowns should authorities refuse to reverse a recent increase in tax chargeable on the industry, which has annual gross revenues of Sh2 billion.
Industry insiders said the economics of the business may not allow them to shoulder the extra tax burden, forcing them to close up shop.
Mombasa’s Golden Key Casino, for instance, has written to Betting Control and Licensing Board (BCLB) chairman Anthony Kimani stating that the sector, which employs about 10,000 people, cannot absorb the 35 per cent tax on gaming revenue.
Casinos have been paying a 12 per cent tax on turnover.
“The casino industry survival is under threat... We just don’t see how we can possibly survive a tax of 35 per cent on gross revenue. We can only consider cessation of operations to avoid continual losses,” Martin Dunford, a director of Golden Key Casino, wrote in the letter.
“We cannot pass on the 35 per cent tax to consumers by changing our odds or increasing our income. If we are forced to cease operations, we will lose trained employees and pay terminal dues, making it very difficult to revive the industry at a later date.”
The casino is the latest to sound a warning on the contractionary impact of the tax increments on gaming, lotteries, betting and prize competitions. The government has refused to reduce the levies.
Suspended operations
Pambazuka National Lottery, for instance, last month suspended its operations and its affiliate sports betting firm SportPesa cancelled its Sh600 million annual funding to various sports organisations.
Taxation of betting, lotteries and prize competitions also rose to a uniform 35 per cent of turnover from the previous 7.5 per cent, five per cent, and 15 per cent respectively.
The flat taxation treats the businesses the same despite their different models and cost structures, which the previous tax regime appears to have taken into account.
Casinos specialise in games where players have a chance of winning a sum of money while betting firms allow participants to wager money on predictions.
Lotteries give prizes to holders of random numbers while prize competitions reward individuals for their skill, knowledge or use of a company’s products.
More casinos are considering shutting down, according to Association of Gaming Operators Kenya (Agok) chairperson Ronald Karauri.
“Most of them (casinos) are saying we would rather just close,” Mr Karauri said, adding that casinos have relatively higher operating expenses compared to lotteries or betting firms.
He gave the example of Nairobi’s Mayfair Casino which he says has some 400 employees.
Mr Dunford detailed the economics of Golden Key Casino which he says cannot accommodate the larger tax bill of 35 per cent.
“Generally a casino’s gross income will exceed costs by between 10 to 25 per cent depending on its size. In our case it is at best 22 per cent,” Mr Dunford wrote in the letter.
Golden Key has annual gross revenue of approximately Sh200 million on which it used to pay a gaming tax of Sh24 million under the previous tax rate of 12 per cent of the turnover.
The casino has significant fixed costs, including rent, utilities, security, maintenance and salaries paid to its 80 employees.
“This is a very different cost structure to the businesses of online betting and lotteries and is the reason we need to have a tax structure for casinos only, and not be lumped in with other gaming enterprises,” Mr Dunford said.
Go offshore or underground
He added that should casinos close up shop, the business will either go offshore or underground. Gross annual turnover of casinos in Kenya stands at an estimated $20 million (Sh2 billion), according to a report by advisory firm PricewaterhouseCoopers (PwC).
While players in the betting, lottery and gaming business have lobbied to have the tax lowered, the government has stuck to its guns.
Deputy President William Ruto last month said the new uniform tax rate is not up for negotiation, adding that the government will plug funding shortfalls in sports after SportPesa suspended its sponsorships.
The government’s stance is likely to spur players in the industry to accelerate their expansion to more tax-friendly markets.
SportPesa, for instance, has in recent years ventured into South Africa, Tanzania and the UK.
