Firms mull relocation over heavy gaming tax proposal

What you need to know:

  • Plans are at an advanced stage to relocate the core business in one of the big betting firms to Tanzania. The neighbouring country is considered friendlier.
  • The other companies could fully go online to evade the ‘many hurdles’ they say KRA has thrown on their way based on “spurious” taxing arrangements.
  • The move will see KRA lose tax revenues and Kenyans lose on employment and business opportunities.

Plans by Kenya Revenue Authority (KRA) to levy at least six different forms of tax on the gaming industry has put betting companies on the edge, with some considering relocating.

This comes after the Betting Control and Licensing Board (BCLB) and the Interior ministry banned all outdoor and social media advertising of betting services.

The board has further stopped betting promotions between 6am and 10pm, the time a majority of the population engage in betting activities.

The move by the government comes as it scratches from all the surfaces to finance its ambitious Sh2.81 trillion budget for the 2019/20 financial year amid a dip in revenue collection from the available tax nets.

The National Treasury intends to slap a 35 per cent corporate tax on Gross Gaming Revenue (GGR) figures and another 20 per cent withholding tax on any winnings from June when the budget is read.

The revised taxation regime will be presented to the National Assembly either through Finance Bill 2019 that will outline the government’s revenue collection measures or the Income Tax (Amendment) Bill 2019.

Finance Bill 2019, which is to be passed before the budget is passed according to last year’s court ruling on the provisional collection of taxes and duties, is likely to be the fastest route.

The Sunday Nation understands that plans are at an advanced stage to relocate the core business in one of the big betting firms to Tanzania. The neighbouring country is considered friendlier.

Many hurdles

The other companies could fully go online to evade the ‘many hurdles’ they say KRA has thrown on their way based on “spurious” taxing arrangements.

Representatives from all the three companies confirmed these plans, but none was willing to go on record for fear of repercussions.

Currently, the taxman levies betting tax at 7.5 per cent of gaming revenue, lottery tax at 5 per cent of the lottery turnover, a gaming tax at 12 per cent of the gaming revenue and prize competition tax at 15 per cent of the cost of entry into a competition.

On Saturday, National Treasury Chief Administrative Secretary Nelson Gaichuhie said MPs will have the final say on the matter as they are in charge of legislation.

“They can only lobby Treasury through proposals because we are now making the Finance bill, which will finally land in the National Assembly,” Mr Gaichuhie said.

“As Treasury, we are not the final authority, we are just facilitators and whatever proposals we come up with will be subjected to public participation by MPs,” he said.
The revelation of the impending heavy taxation has the betting industry in a tailspin, with discussions currently underway to relocate operations, a move that would see KRA lose tax revenue and Kenyans losing on employment, business opportunities and sponsorships.

Best practice

At the centre of the controversy is a proposal by KRA to focus on GGR as the base figure for all tax calculations.

GGR is the amount gambled minus the winnings returned to players and is considered a true measure of the economic value of gambling by global best practice benchmarks.
It is also the figure used to determine what a gaming operation earns before taxes, salaries and other expenses are paid.

In essence, GGR is the equivalent of “sales”, not “profit”.

International best practice is such that corporation tax is levied on taxable profit in the company's accounting year.

Tax experts say charging corporation tax on GGR would sink betting companies and leave them with no alternative but to relocate their operations, denying KRA the very tax they were after.

Mr Nikhil Hira, one of the leading tax brains in Africa, reckons that there is need for KRA to review their plans well in advance before the budget is read to avoid confusion on implementation, exodus of betting firms and to ensure the taxes are not punitive.

Such consultations would also ensure that the taxes levied are within standard international practice.

“There are several grey areas with the gaming tax proposals. The first concern is the issue of double taxation on betting firms, of which even KRA is aware.

“Corporate tax is levied on profits but it is not clear if withholding tax is first deducted as is the standard practice,” said Mr Hira, adding “Overall, the (gaming tax) law in Kenya is very confusing and does not seem to have been well thought out.”

SportPesa said that it would be a lose-lose scenario if betting firms are taxed out of the country as KRA will miss the tax revenues while Kenyans will miss on the job and business opportunities and the various corporate social responsibilities that betting firms offer to neighbourhoods and sports organisations.

“SportPesa is a law abiding corporate citizen that upholds all her tax and regulatory requirements. The business will continue to fulfil all her tax obligations, including withholding tax as required by the law,” said the company in a statement.

Sh200 billion

The betting industry has grown from about Sh3 billion gross turnover five years ago to over Sh200 billion currently.

The government has about Sh15 billion in its sports fund from the betting companies for the last two years.

“As SportPesa, we reaffirm our commitment to supporting the government’s economic development agenda by operating as a law abiding business that is committed to tax compliance,” the statement said.

Tax experts further say that if KRA goes ahead and implements the proposals without consulting, the move would kill the gaming industry, which is one of the very few sectors of the economy that is growing.

Any relocation would see neighbouring countries benefit at the expense of Kenya, as has happened with a number of regrettable industry relocations.

Mr Hira says that for example in the US, gambling winnings are fully taxable and a winner is required to disclose the winnings in their tax returns.

As standard practice, one may deduct gambling losses but only if they are itemised and supported. However, the amount of losses one may deduct cannot be more than the amount of gambling income reported in the return.

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