What you need to know:
- The tax was quietly removed in suspicious last-minute changes to the Finance Bill that was signed into law by President Uhuru Kenyatta this week.
- Treasury Cabinet Secretary Ukur Yatani said the excise tax was removed through the Finance Act 2020, but the government had not reneged on its commitment on taxation of the betting industry.
The government has made a U-turn and will now reintroduce the 20 per cent excise duty on sports betting in the next six months.
The tax was quietly removed in suspicious last-minute changes to the Finance Bill that was signed into law by President Uhuru Kenyatta this week.
This follows concerns that the government had had a change of heart on the controversial tax on the multibillion-shilling sports betting industry, which was part of the reason the two biggest players in Kenya – Sportpesa and Betin – had closed shop.
It has also emerged that another mysterious investor incorporated in Delaware, a US state with high levels of corporate secrecy and a zero tax rate, has also acquired a significant stake in Sportpesa, which was until last year East Africa’s biggest betting company.
Treasury Cabinet Secretary Ukur Yatani said the excise tax was removed through the Finance Act 2020, but the government had not reneged on its commitment on taxation of the betting industry.
Mr Yatani has also turned the spotlight on the Departmental Committee on Finance and National Planning chaired by Kipkelion East MP Joseph Limo, which presided over the suspect changes.
“The removal of this tax happened during the committee stage of the Bill. Following various consultations in line with the government’s commitment to mitigating against the social vices associated with betting activities, the National Treasury and Planning will be proposing to the National Assembly the reintroduction of excise duty on betting within the next six months,” Mr Yatani said in a statement.
“The government remains committed to supporting the youth engage in productive activities through various programmes,” the CS added.
This means the betting industry has been given six months to enjoy lower taxes. The law does not allow the reintroduction of a Bill until after six months.
“The removal of the 20 per cent tax on bets staked is a cause of concern and not celebration. This will open the floodgates for more betting companies and subsequently, more gambling addiction especially if public health measures to protect the youth from gambling harm are not in place,” said Gaming Awareness Society of Kenya co-founder Nelson Bwire.
Reversing betting tax was not on the cards two months ago, when Mr Limo’s committee published the Finance Bill for public comment on May 8. At this stage, the Bill contained no plans to tinker with any betting taxes.
Committee meeting minutes show that an obscure stakeholder group – identified only by a non-existent URL as shade.co.ke – wrote to the committee on 15 May proposing the scrapping of the 20 per cent excise duty on bets placed. “It has made many betting firms cash-strapped, hence cutting down on their sponsorships to local sports clubs,” the group said.
Curiously, the committee agreed, noting that “the high level of taxation had led to punters placing bets on foreign platforms that are not subject to tax and thereby denying the government revenue.”
This is what set the stage for the scrapping of the tax, even as other ‘sin’ sectors, among them alcohol manufacturers, were slapped with additional taxes.
The Nation exclusively reported this week how legislators had at the eleventh hour made changes to the Finance Bill before sending it to the President for assent. We also revealed how businessman Peter Kihanya Muiruri has over the past 14 months acquired stakes in three companies that are part of SportPesa’s international gambling empire.
The Nation, working with UK-based journalism organisation, Finance Uncovered, accessed documents filed by SportPesa companies in Kenya, the UK and the Isle of Man, a tax haven off the coast of Britain.
In addition to the recent acquisition by Mr Muiruri of stakes in SportPesa, other significant changes have taken place in its shareholding since it withdrew from Kenya last September.
The first major change is that American-Bulgarian national Gene Grand, one of the original investors in SportPesa, appears to have sold out, transferring his entire 21 per cent stake to Naogen Investment Inc, a US company.
Naogen has acquired a 21 per cent stake in both the Kenyan and Isle of Man operations of SportPesa and 33 per cent in the UK holding company.
Naogen is incorporated in Delaware, a US state with high levels of corporate secrecy. As such, Naogen’s ownership remains a mystery.
This new American stake may be significant because the US Supreme Court lifted a federal ban on sports betting in 2018, leading to the legalisation of betting in more than a dozen US states.
The second major change to have taken place involves SportPesa Global Holdings Limited, the UK-based company that owns SportPesa’s non-Kenyan betting interests in Tanzania, South Africa, Italy and Russia. It also owns a highly profitable UK business, SPS Sportsoft Ltd, which provides IT services to SportPesa sister companies, including Pevans in Kenya.
SportPesa Global Holdings made a profit-after-tax of almost £12m (Sh1.6 billion) in 2018, according to its financial statements.
Following the issue of more shares in SportPesa Global Holdings in November last year, several of the company’s Bulgarian shareholders have increased their stake, while some Kenyan shareholders have decreased theirs.
One other change has taken place in Pevans East Africa, the company that owns SportPesa in Kenya, with a three per cent stake being acquired by a little-known Kenyan company called Leadwood Holdings Limited.
Records from the registrar of companies show that Leadwood is owned by John Victor Njangi and Samuel Wachira Gichuki.