Kenya government imposes punitive tax on all gambling

The burgeoning Kenya gambling industry has likely been stopped dead in its tracks, and operators are reeling from Thursday’s 2017-2018 budget revelations imposing punitive taxes on gambling companies.

Treasury Cabinet Secretary Henry Rotich appears to have ignored earlier advice from Kenya Revenue Authority Commissioner John Njiraini, who has repeatedly warned lawmakers that over-taxing the industry is likely to be counter-productive.

Gambling companies currently paying a 7.5 percent of GGR on sports betting; 15 percent on lottery revenue and 12 percent on gaming revenue have been hit with an across-the-board increase of a numbing 50 percent of GGR, making it almost impossible for companies to prosper.

Rotich justified his heavy handed approach by referencing the potential threat of widespread growth of gambling in the country, and his plans to use the extra tax money to fund youth projects in national sports, culture and Arts, according to local media reports from the East African nation.

“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 at parliament Thursday.

Kenya gambling has been making local headlines in recent weeks following attempts by Gem Member of Parliament Jakoyo Midiwo to drive through a gambling reform bill with high tax (although lower than 50 percent) and punitive provisions, which have been fiercely opposed (see previous reports).

Tax from betting companies has tripled in two years according to the Kenya Revenue Authority, and according to local PwC analyst Maurice Lugongo forecasts prior to the new budget announcements predicted that steady growth is possible over the next five years despite 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,” Lugongo told reporters. “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 The Finance Act 2012 however repealed this tax.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.”

However, two years on, the industry is “vibrant” but tax receipts have been relatively low, with operators blaming impracticability and difficulties in implementing the tax laws.

In a presentation to Parliament’s Labour and Social Welfare Committee last month, tax commissioner Njiraini told MPs that eight of the 25 licensed betting companies had paid a total of Sh4.7 billion (around US $47 million) in the financial years 2014/2015 and 2015/2016.

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, he said, adding:

“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 warned.

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