The Kenya Revenue Authority (KRA) on Thursday suffered a blow after a tribunal ruled that a punter’s stake in a bet cannot be charged the 20 percent tax on winnings.
The Tax Appeals Tribunal sitting in Nairobi ruled that the 20 percent tax should be charged on the positive difference between the payout made and stakes placed in a given month.
KRA has been demanding billions of shillings from betting firms based on the gross amount of the payout to the punters, including the staked amount. The tribunal also placed a greater responsibility for payment of the tax on the punters, partially shielding the betting firms from prosecution and aggressive pursuit of the 20 percent withholding tax.
The tribunal’s verdict now looks set to tilt the ongoing tax dispute between KRA and more than 20 betting firm— including SportPesa and Betin Kenya—which have been denied operating licences for the year starting July. KRA has been demanding Sh61 billion from the betting firms for the period between May 2014 and March 2019.
SportPesa on September 27 announced it was halting operations due to a drastic hike in taxes on betting stakes and the unresolved disputes with KRA. Betin Kenya also ceased its operations, citing the heavy taxation as the main reason.
The Treasury last year reintroduced the 20 per cent tax on winnings, and amended the definition of winnings to include the stakes, sparking the dispute with the betting firms.
The earlier law provided for the 20 percent tax be charged on net winnings, which is arrived at by deducting the amount staked by the punter. But this was revised to include gross winnings. “The definition removed the provision for deduction of amounts staked. This amendment was effective 1st July, 2018,” KRA said in documents filed in Parliament.
The betting firms are relying on a previous definition prior to the Finance Act 2018 and interpret winnings as “the positive difference between the payout made and stakes placed in a given month, for each player.”
Using the same example, a player who bets Sh1,000 and wins Sh100 would pay withholding tax of 20 percent of the Sh100 winning. The player would leave with Sh1, 080, which includes his Sh1, 000 original stake and Sh80 winnings. KRA on the other hand has interpreted winnings as the gross amount of the payout to the punters, including the staked amount.
Using this interpretation, a player who bets Sh1, 000 and wins Sh100 would pay a tax of Sh220 and leave with Sh880. As such, despite winning, the punter would have lost Sh120.
The tribunal Thursday ruled that the 20 percent withholding tax should be based on net winnings.
The betting and gaming companies were expected to withhold a fifth of the sums won by punters to be remitted to the taxman — piling an additional tax burden on an industry that is already paying 15 percent of gross earnings to the Exchequer. KRA has been demanding Sh8.59 billion from Safaricom as withholding tax arrears due from two major betting firms -- SportPesa and Betin Kenya -- in a fresh row pitting the State agency against the betting industry.
The taxman earlier wrote to Safaricom declaring the telecommunications firm a withholding tax collecting agent for SportPesa and Betin and demanded immediate payment of the sum.
KRA demanded that Safaricom #ticker:SCOM pays Sh5.29 billion withholding tax arrears due from Gamcode Limited, trading as Betin, and a further Sh3.29 billion due from Pevans East Africa, which trades as SportPesa.
The gaming companies largely relied on Safaricom’s network to take bets, communicate with users and process payments through paybills.
The government in July ordered Safaricom to stop processing payments for sports betting companies, effectively grounding their operations.
Online sports betting companies such as SportPesa grew rapidly, riding a wave of enthusiasm for sports to achieve combined revenue of Sh204 billion shillings last year.
However, that has sparked concern in the government about the social impact of betting. In May, the country introduced new gambling regulations, including banning advertising outdoors and on social media. High Court referred the dispute over tax on winnings to the Tribunal after SportPesa sued KRA in a suit that saw other betting firms including Betin get enjoined.