NAIROBI, Kenya, Mar 30 – The Betting, Lottery, Gaming and Competition Industry is the hardest hit in the 2017/2018 Budget after Treasury Cabinet Secretary Henry Rotich raised taxes for this industry to 50 per cent.
The uniform tax is for all categories and all the proceeds will be put in a newly created National Sports, Culture and Arts Fund to support the youth involved in sports and culture in the country.
Rotich attributes the move to the negative consequences the industry has caused to young Kenyans.
“Betting and gaming have become widespread in our society in an environment that is inadequately regulated. Its expansion is beginning to have negative social effects in particular on the youth and the vulnerable members of the society,” Rotich noted in his Budget Speech to Parliament Thursday.
The move comes even as Gem Member of Parliament Jakoyo Midiwo has proposed a new law to introduce new and higher taxes to the gaming industry.
The draft Bill which is in its second reading in Parliament proposes a tax charge on winnings at the rate of 20 per cent, an increase in betting tax from 7.5 per cent to 15 per cent as well as higher lottery tax from five to 20 percent and gaming tax from 12 to 20 per cent.
Gross revenues from the industry are estimated to be in the region of Sh3 billion and forecasts indicate that the industry will experience steady grow over the next five years according to tax expert from PriceWaterhouseCoopers (PwC) Maurice Lugongo.
Lugongo says 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.
“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 per cent withholding tax. The Finance Act 2012 however repealed this tax. The tax was later reintroduced through the Finance Act 2013. The reintroduction caused 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,” explained Lugongo.
Two years down the line Lugongo says, 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.
Tax from betting companies has tripled in two years according to the Kenya Revenue Authority.
In a presentation to Parliament’s Labour and Social Welfare Committee last month regarding the Betting, Lotteries and Gaming (Amendment) Bills 2016, KRA Commissioner General John Njiraini told MPs the fast-growing industry has helped expand the tax base.
He said eight of the 25 licensed betting companies had paid a total of Sh4.7 billion in the financial years 2014/2015 and 2015/2016.
He said other taxes from the industry such as PAYE, VAT and income tax are projected to more than double by the end of the current financial year 2016/2017 from Sh1.2 billion last to about Sh3.4 billion.
“The philosophy for taxing betting, lotteries and gaming revenues is partly to discourage gambling while also creating avenues for raising revenue. The application of this principle nevertheless requires moderation in relation to the imperative to ensure business continues to operate and thrive,” Njiraini told the committee chaired by Matungu MP David Were.
Betting companies have been against the taxes citing that the business is a costly undertaking.
“In addition to normal expenses such as salaries and rent licenses, gaming firms incur other costs such as fees for software needed for their operations and this comes at a princely amount,” Senior Content Editor at SportPesa Lola Okulo had stated in a recent opinion piece on the Capital FM Website.