SportPesa has issued a notice to appeal against a High Court judgment that failed to overturn the imposition of a higher tax rate on gambling, with the betting firm citing unfair tax burden.
The High Court last Thursday dismissed a suit by SportPesa and Pambazuka national lottery, seeking to stop implementation of a 35 per cent tax on all gambling revenues.
In the notice, the firm wants to overturn the ruling by Justice John Mativo, who argued there was no evidence to show the higher tax is punitive and that it was imposed as a deterrent to gambling.
SportPesa reckons that the higher tax rate is in breach of Article 201 of the Constitution, which demands the public finance system promotes an equitable society where the tax burden shall be shared fairly.
Besides the 35 per cent tax on revenues, betting firms pay 30 per cent corporate tax and dedicate 25 per cent of their sales to social causes like sports sponsorship as a legal requirement before taking care of winnings and other operating expenses.
“This means that a further 35 per cent tax would impose an aggregate 90 per cent tax burden on betting industry players,” says SportPesa.
“This is unfair, inequitable and discriminative, thus is illegal for contravening the Constitution. For lotteries, the total deductions come to more than 100 per cent because 50 per cent is paid out as prizes and not counting costs."
Until Sunday, lotteries were taxed at five per cent of their sales, betting firms - bookmakers - at 7.5 per cent, casino gambling at 12 per cent and competitions like raffles at 15 per cent besides other taxes and levies.
Betting firms say the tax increase will kill the fledgling industry and hurt supporting businesses, including telecoms and media companies, which benefit from daily advertisements from the firms.
Safaricom says mobile phone-based betting is driving revenue in its SMS business.
“The tax burden is more than double that applied to all other industries,” say the betting firms, arguing that other companies also have the benefit of increasing prices when taxes like VAT and excise duty are charged on their revenues.
They are making reference to companies like East African Breweries Limited #ticker:EABL, which increase beer prices when fresh taxes are imposed on its products.
The firms reckon that the high taxes will kill the regulated businesses and create a black market of people taking bets.
Expert advice attached to court documents indicates that gaming tax in developing markets should be between five and 15 per cent for lotteries and two to seven per cent for non-lottery games such as sports betting.
Justice Mativo ruled that the National Assembly had correctly processed the bill that provided the tax rise and that it was not necessary for the Senate to be included as demanded by the betting firms.
“The tax complained of in this petition falls under the category described as “sin tax” and is aimed at discouraging the activities in question,” said Justice Mativo.
“It has not been demonstrated that the tax is punitive. No evidence of abuse of tax policy was demonstrated in this case.”
Betting has expanded rapidly since 2014 thanks to mobile phone-based financial services like M-Pesa, which allow users to deposit bets and receive winnings on their phones without needing bank accounts.