The Treasury yesterday gave the clearest signal yet that it will vigorously pursue gamblers for a share of the lottery and betting windfalls with a planned re-introduction of a 20 percent tax on winnings. The Tax Laws (Amendment) Bill 2018 seeks to restore the tax charged on betting winnings that were dropped in 2016 due to numerous hiccups in its implementation.
If passed, betting and gaming companies will withhold a fifth of the sums won by punters to be remitted to the taxman — piling additional tax burden on an industry that is already paying 35 percent of gross earnings to the exchequer.
“The Bill seeks to amend the Income Tax Act to introduce a tax on winnings,” says the proposed law that was tabled in Parliament yesterday.
Tax experts said that should the Bill sail through, the taxman will demand that betting companies deduct and remit the 20 percent withholding tax on every gaming win. “The tax on winners was partly dropped because of tax administration and implementation challenges that the State is assumed to have studied and resolved,” said Mr. Omondi, a tax consultant at Deloitte
However, gambling companies have described as punitive the 35 percent levy on their revenues that took effect in January 2017. The new tax saw Pambazuka National Lottery suspend its Kenya operations, while gaming giant SportPesa put on dropped a Sh600 million sports sponsorship deal with local football, rugby and boxing clubs.
Eight major players in the betting sector paid Sh4.7 billion in taxes over the three-year period ending 2016. The Treasury reckons that the steep taxes are meant to discourage gambling, a pastime that is seen to be addictive and pushing thousands of youth into a debt trap.
Besides the 35 percent tax on revenues, betting firms pay 30 percent corporate tax and must dedicate 25 percent of sales to charities as a legal requirement, before taking care of winnings and other operating expenses.
Treasury Secretary Henry Rotich said the government increased the taxes to curb exponential growth of gambling that was hurting the young and vulnerable. Besides, failure to tax winnings was seen as merely forcing betting firms to absorb the huge tax burden, with little impact on individual gamblers.
More recently, increased taxation has seen betting firms such as Bet365, Betway, and Betfair — whose services are accessible through websites — relocate their operations to the islands of Malta and Gibraltar where taxes on gaming revenue is capped at one percent.
Besides betting firms, analysts reckon that a tax-induced slowdown could also hurt supporting businesses, including telecoms and media companies that benefit from the advertisement of betting and gaming activities. Betting has expanded rapidly in recent years thanks to mobile phone-based financial services such as M-Pesa that allow users to deposit bets and receive winnings through the phone without bank accounts.
Kenyan casinos early this year warned of looming mass shutdowns and thousands of job losses should authorities refuse to reverse the aggravated tax measures. Consultancy firm PricewaterhouseCoopers (PwC) says the 35 percent tax on all gambling revenues is high compared to other African countries like South Africa, which charges 9.6 percent, Rwanda (13 percent) and Uganda (20 percent).