alexa SportPesa poised to prosper despite high tax rate - Daily Nation

SportPesa poised to prosper despite high tax rate

Wednesday July 12 2017

By BANKELELE
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Now that the 11th Parliament is over, it’s time to look at one of the strangest pieces of legislation, one that started with Gem MP Jakoyo Midiwo’s attempt to regulate sports betting.

The fate of his Betting, Lotteries and Gaming Bill is still unclear, but one apparent outcome of it was a hefty tax on gambling in the Finance Bill 2017.

In his budget speech read in April, Treasury Cabinet Secretary Henry Rotich proposed to raise levies on betting, lottery, gaming and competition from the 7.5 per cent, five per cent, 12 per cent and 15 per cent, respectively, to a uniform tax rate of 50 per cent for all categories.

He said that this would go to a new National Sports, Culture and Arts Fund. He also said that inadequately regulated betting and gambling had become widespread and were having negative effects especially on the young and the vulnerable.

The Bill was then introduced in Parliament and went to the Departmental Committee on Finance, Planning and Trade, which reviewed clauses in the Bill.  

INDUSTRY REACTION

When it retuned to Parliament, it had a 35 per cent tax in place of the 50 per cent and chairman Benjamin Langat said that after consulting stakeholders like regulators, an audit firm and even the National Treasury, they had concluded that a 50 per cent tax was too high and did not make business sense.

But several MPs challenged the committee’s proposal of a 35 per cent tax in place of 50 per cent. Some questioned whether the 35 per cent clause had been procedurally introduced. Others said only a 50 per cent tax would help the government meet revenue targets.

The result of this was that Parliament rejected the proposed changes and left the gambling taxes as before. But the President sent the Finance Bill back to Parliament, in effect asking that the 35 per cent tax be reinserted. It was and it was passed. 

Industry reaction was swift. Through the Association of Gaming Operators-Kenya (Agok), operators said they could not do business with the 35 per cent tax on gross profits, alongside other taxes.

The leading firm SportPesa gave notice to terminate all Kenya sports sponsorships, including several lucrative national and local rugby, football and boxing sponsorships in January 2018, when the new Act comes into effect.

COMPLIMENTARY MATCH TICKETS

SportPesa had also launched in Tanzania in May 2017 and soon after signed several sponsorship agreements with leading soccer teams, including Yanga and Simba, of TSh5 billion each (about KSh230 million).

They were welcomed, with the Tanzania Football Federation secretary-general quoted as saying he hoped the partnership with SportPesa would help the country rise in soccer ranking like Kenya had.

SportPesa also organised an eight-team soccer tournament, which featured Gor Mahia, AFC Leopards and Nakuru AllStars from Kenya, and Yanga, Simba and Singida from Tanzania, all sponsored by SportPesa, and joined by Zanzibar’s Jang'ombe Boys and Tusker FC. 

Gor Mahia defeated AFC in the final, and tomorrow, they will play Everton at the 60,000-seat National Stadium in Dar es Saalam, Tanzania.  

Everton will be preparing for the 2018 English Premier League season and also the Europa League, which starts on July 27. SportPesa is offering complimentary match tickets to Everton supporters making the journey to Tanzania, travel not included.

All these events in Tanzania happened in two months, coinciding with the steady passage of unfriendly tax legislation in Kenya.  

LESS DRASTIC

SportPesa appears to have engaged in some diversification akin to companies in South Africa investing in other countries to offset risks in their main markets.

An example is Naspers, which many Kenyans will relate to as the parent of OLX and MultiChoice and brands such as DStv and GOtv.

But the company, listed on the Johannesburg Stock Exchange, actually earned 57 per cent of its 2016 revenue from Asia, from such investments as 33 per cent of Tencent, China’s largest internet-services platform, and 43 per cent of MakeMyTrip, the leading online travel business in India. 

Naspers now only gets 20 per cent of its revenue from South Africa and seven per cent from the rest of Africa.  

Will the same happen in Kenya? High taxes have not dissuaded Kenyans and others from engaging in behaviour that some consider sinful. 

The government of Kenya side probably saw the 35 per cent tax as a compromise: a bitter pill for gambling and sports betting companies, but far less drastic than the 50 per cent tax proposed in the Finance Bill, or the far-reaching effects of Midiwo’s Bill.

Had it passed, it would have banned foreign tourists from taking part, or the use of mobile phones or money transfer for sports betting.

Twitter: @bankelele