Gamblers lose attempt to suspend law on tax

Gamblers have lost a bid to suspend implementation of the government's decision to introduce additional taxes on all transactions conducted through online betting sites.

The gamblers said the government, through the Finance Act, 2021, has introduced an extra tax of 7.5 per cent on top of the 20 percent tax imposed on all winnings.

While describing the taxes as excessive, the gamblers urged court to stop the Kenya Revenue Authority (KRA) from enforcing a provision in the Excise Duty Act introduced by the Finance Act by collecting or demanding payment of the new taxes imposed on transactions conducted by online punters.

They argued that the enforcement of the disputed law stands to kill the betting industry in Kenya and the livelihoods of millions of Kenyans sustained by the same because punters are being taxed on every step and on the entire value of transaction when placing bets.

But Justice George Odunga declined the request, saying that while the implementation of the legislation may well have ripple effects on how the betting industry operates, it has not been contended that the said implementation has the immediate effect of leading to closure of business.

He also found that the gamblers do not dispute the fact that whatever payment shall have been made pursuant to the said legislation can be recovered, however tedious the process might be.

"It has been contended which is not disputed that some of the online betting sites are already complying with the provisions (of the disputed law) which are being challenged by the gamblers," said Justice Odunga.

That being the case, he said, it was his view and that public interest militates against the suspension of the disputed provisions since at the end of the day, should the gamblers succeed, KRA may be directed to refund whatever shall have been collected.

On the other hand, the KRA stated that should the petition fail, it would not be able to recover the lost taxes.

In their application, the gamblers had argued that if the disputed law is not suspended, then they will suffer untold prejudice because their gross wagered amounts will be subjected to an excessive, discriminative and illegal tax.

They told the court that they engage in gaming as a source of entertainment and earning upon which they support themselves and their family and dependents.

They said under the new law, all transactions by punters have been subjected to excise duty on the mobile phone money transfer charges payable to the government as specified in the Part II (Excisable Services) of the First Schedule to the Excise Duty Act.

The court heard that punters are not sellers of any category of specified goods or services in the gaming sector but investors who stake bets on online platforms provided by the betting companies.

To do so, they use mobile phone platforms provided by the betting companies with support from mobile phone companies to carry out their gaming activities.

In this regard, it was pleaded that the gamblers maintain a mobile money wallet on the mobile platforms from which they transfer money to the companies’ wallets to wager a bet and also withdraw money that may have been earned through winnings.

All these transactions, according to them, are subject to excise duty on the mobile phone money transfer charges payable to the government as specified in the Part II (Excisable Services) of the First Schedule to the Excise Duty Act.

As punters, they pay 20 per cent withholding tax on all their winnings from games staked while the betting firms pay 15 per cent betting tax on the gross gaming revenue.

The gamblers also pay additional tax through charges on mobile phone excise tax every time they transfer money from their wallets to stake a bet, and whenever they withdraw winnings.

It was, however pleaded, that under Part II of the First Schedule to the Act, which provides rates of excisable services, KRA has, through the Finance Act 2021, introduced an excise duty of 7.5 per cent on betting stake, which is to be computed on the amount wagered or staked by the player.

The gamblers contended that in introducing the excise tax, the KRA will in essence tax a punter just for having money and being a player and taking a risk [stake] and without effectively consuming the goods or service being purchased.

They further asserted that the government will be charging excise duty on the entire value of the transaction as provided in the First Schedule.

According to them, for instance, when a person uses mobile money services to transfer Sh500, the excise duty is levied on the transaction charges collected by the telecommunication company (the basis of the tax is the transaction charge by the telecommunications company), and not on the Sh500 transferred.

Similarly, that in banking, excise duty applies on the transactional banking charges/ fees and not on the money deposited or withdrawn by an account holder.

The net effect of the new law, they say, is to the effect that a punter will be losing 7.5 per cent of his money just by merely placing a bet.

They lamented that since punters already pay a total of 20 per cent withholding tax on their winnings, to subject the gamblers and other punters to additional tax in the manner proposed in the disputed law amounts to double taxation on the same transaction which is contrary to the principles of taxation generally.