The gambling industry in Kenya has gained a lot of public interest recently. The industry has been in existence in Kenya since 1969 and has made a substantial contribution towards the development of the country. Gross revenues from the industry are estimated to be in the region of Sh3B and forecasts indicate that the industry will experience steady grow over the next five years.
The gambling industry in Kenya is regulated by the Betting Control and Licensing Board (BCLB). The board regulates all gambling activities ranging from lotteries, casinos, sports betting, prize competitions and promotions. Sports betting has recently emerged as one of the most thriving of the gambling businesses with betting on international football, especially the prestigious English Premier League taking center stage.
Kenyan gamblers have for some time enjoyed the services of online and mobile sports betting. Most of the operators in the sports betting industry in Kenya operate through betting shops with others adopting to the new trend that makes use of mobile and online based platforms. Some of the big players in sports betting include SportPesa, Betway, Betln and mCheza.
Despite the steady growth of gambling in Kenya, the industry has faced several challenges such as low-profit margins as a result of high fixed costs, technological challenges, weak regulatory and institutional framework, intense competition, and an unclear tax policy.
Unlike in developed countries, Kenya does not have a special tax regime for the gambling industry. The scope of taxes in the industry range from licensing fees to income taxes, however, gambling services are exempt from VAT.
Winnings from the gambling businesses in Kenya have remained untaxed for a long period of time. The first attempt to subject such winnings to tax came in 2011 when the Finance Bill 2011 introduced a 20 percent withholding tax. The Finance Act 2012 however repealed this tax.
The tax was later reintroduced through the Finance Act 2013. The reintroduction caused an uproar from players in the sector who moved to court to petition the reintroduction on the basis that the legislation introducing the tax was unconstitutional as it was passed without public participation contrary to the Constitution. The court, however, dismissed this petition.
Two years down the line and with a vibrant gambling industry, tax revenues from the industry have been disheartening with gambling operators citing impracticability and difficulties in implementing the tax laws.
The Finance Act 2015 introduced various changes in a bid to improve tax revenues from the industry. The law specifically seeks to tax winnings payable to punters (players) by bookmakers. Whilst the intentions of the changes introduced are clear, there is a gap regarding the applicable withholding tax rates and the persons to whom the withholding tax rates are applicable to.
The law seems to imply that payments by bookmakers to non-resident players should not be subject to withholding tax whilst winnings of bookmakers (whether resident or non-resident) should be subject to withholding tax at 7.5 per cent of the gross profits. Gambling operators have moved to court to compel the Government to repeal the tax clauses affecting the taxation of winnings from gambling on the basis that the clauses are contradictory and not clear on who should, in fact, pay the tax.
The BCLB wants the government to eliminate the withholding tax on winnings of a bookmaker and introduce a gaming levy on the gross revenue of an operator. There is a bill that seeks to amend the Betting Control and Lotteries Act to introduce levies that range from 5 percent to 15 percent of the gross revenues of the operator. It is still unclear whether these levies will be the only taxes that will apply to the gambling industry.
Las Vegas, for instance, is a testament on the powerful ability of gambling to foster economic development. Taxation of this industry in Las Vegas is simplistic with the operators paying a certain percentage on their gross revenues as tax. The Kenyan government should, therefore, borrow heavily on the taxation of this sector from jurisdictions that have a thriving gambling business so as to ensure its growth and sustainability going forward.
By Maurice Lugongo & Salome Kaiba
PwC Kenya’s Tax practice