Kenya Revenue Authority opposes tax plans for betting firms

Lotto Chief Executive Officer Brian Waluchio (centre) following the proceedings during the National Assembly Labour Committee proceedings on February 16 2017. PHOTO DENNIS ONSONGO | NATION MEDIA GROUP

What you need to know:

  • KRA says the proposals contained in a Bill sponsored by Gem MP Jakoyo Midiwo are against the philosophy of taxing activities deemed socially unacceptable.
  • The eight major firms in betting would by June this year have paid a combined Sh4.7 billion in taxes over the last three financial years.

The Kenya Revenue Authority has opposed plans to introduce restrictions in gambling and increase its taxes.

It said on Tuesday that the proposals contained in a Bill sponsored by Gem MP Jakoyo Midiwo are against the philosophy of taxing activities deemed socially unacceptable.

“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 thrive,” said

Revenue authority Commissioner General John Njiraini told the National Assembly’s labour committee that the eight major firms in betting would by June this year have paid a combined Sh4.7 billion in taxes over the last three financial years.

The companies will have paid Sh3.757 billion as corporate tax by the end of the current financial year on June 30.

Corporate tax is charged at 30 per cent of profits, meaning that the betting firms will have by the end of the current financial year made a profit of at least Sh12.5 billion over the last three years.

The taxman collected Sh120.5 million in the 2014/15 financial year, Sh1.2 billion in 2015/16 while targeting Sh3.3 billion in the current year. This is a combination of Pay As You Earn, Withholding Tax and Corporate Tax.

This means that revenues from gambling have increased by three times in the last one year and by nearly 30 times from 2014/15 to 2016/17.

CORPORATE TAX

The main growth has been on corporate tax, which is charged on a company’s profits, as it grew from Sh19.4 million in 2014/15 to Sh1.2 billion in 2015/16 and is expected to reach Sh3 billion in the current year.

Mr Njiraini said that while the increase in tax would naturally result in more revenue, it would come with the risk of driving the businesses underground.

“A similar effect has been seen in tobacco and alcohol. Perhaps the best example would be the impact the tax rate has had on the Keg brand of beer,” said Mr Njiraini.
The increase of Excise Duty on the low-end beer in 2015 led to a reduction in sales and is thought to have driven the increase in the consumption of illicit alcohol.

Mr Njiraini said the reintroduction of winnings tax would help increase the number of taxpayers while that of the betting tax corresponds with the rate in other countries on the continent.

Tax begins this month for gambling companies enacted through last year’s Finance Act, which will have the firms pay tax on revenues and profits.

“We recommend retention of existing regimes to provide time to understand lessons from implementation,” said Mr Njiraini.

Mr Midiwo’s Bill proposes to increase all categories of tax: betting tax from 7.5 per cent to 15 per cent, lottery from five to 20 per cent and gaming from 12 to 20 per cent.

It also proposes to have gambling companies pay 30 per cent of their proceeds as prize money, 65 per cent to charitable activities relating to health, education and sports and five per cent to cover their operational costs.

Mr Njiraini said the proposals would go contrary to the purpose for which businessmen set up gambling companies.

“Betting companies are private enterprises set up for a profit-making motive. The Bill effectively converts the enterprises into social outfits from which the proprietor receives no benefit. It is therefore inconsistent with prudent business practice and should be deleted to allow the enterprises to determine the amounts they wish to allocate to charity,” said Mr Njiraini.