It's time to rethink tax measures on gambling

Sports betting has experienced exponential growth globally to become a lucrative sector with huge returns for investors and the economy.

However, in Kenya, the benefits are yet to be realised by the Government. Whereas the West has devised ways of reaping the benefits, Kenya is still struggling with how to consolidate these economic gains and to regulate the industry.

Measures so far taken have either yielded no or very little results economically. These include efforts to impose taxation measures mainly because many of them are either untested or unviable. There has also been no stakeholder consultation.

The Government appears to think that because of the huge interest Kenyans have shown in sports betting and the huge winnings accrued, there is a huge potential in terms of taxes.

In some quarters, there is talk that sports betting industry is worth Sh200 billion, which is not true.

It is true the industry has in last five years grown in leaps and bounds, but the Gross Gaming Revenue (GGR) has maintained the 7.5 per cent to 12 per cent threshold. To put this into perspective, Central Bank of Kenya recently announced that mobile money transfers hit a record Sh1.6 trillion in the first quarter of this year. Is this, for instance, Safaricom’s revenue? No! Equally, the Sh200 billion betting industry turnover should not be misconstrued to mean revenue.

We have to understand that this is neither a product nor service industry; it is a sporting industry in which winnings determine payout. Much of what is held by the industry players are individual investments of players or punters. No one would consider bank savings as the lenders’ overall turnover. Profits are calculated based on income and not investments or savings of account holders.

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Equally, much of what is held by stakeholders in this industry are individual investments of various players from which a legally acceptable percentage is retained.

At the same time, much of what is held in stakeholders’ accounts are investments for payouts to winners. Considering taxation of investments is illegal and contravenes business principles.

I, therefore, see a need for serious rethink on betting sector taxation and a review of relevant legislation to include a determined revenue generation approach. It is estimated that global illegal betting could be upwards of $500 million because of such fundamental flaws.

The US and UK consistently and continually update their laws to keep pace with new realities. The Gambling Act 2005 in the UK, for instance, established a process to licence potential operators and ensure protection of consumers.

The PWC report of 2016 puts the annual gross turnover of the industry in Kenya at $20 million. The Government is literally trying to keep up with the pace of the industry to date.

Attempts to consolidate economic gains from the betting industry began in 2017 with the imposition of withholding tax of 20 per cent. This was, however, an unviable and unworkable decision whose implementation proved worthless.

In revisiting the approach, the Government ended up initiating an unprecedented trend of inconsistent annual tax reviews. Each year since then, has seen a different tax approach and design. The volatility of such unilateral decisions destabilises the sector as they make trends unpredictable and hence limit investment viability.

The President is on record stating that the Government wants to create an investment climate that enables those putting their money in the local economy to do so with 20, 30 or 50 year plans.

In rescinding its decision on withholding tax after a year, the Government opted for 35 per cent tax on GGR. It would later change to 15 per cent tax on GGR, 20 per cent withholding tax and recently the proposed 10 per cent excise tax on wagers. This annual back and forth ritual creates uncertainty for investors.

Sections 16, 18, 22 and 46 of the Betting Lotteries and Gaming Act provide for licensing of several forms of activities that may give rise to the ‘winnings.’ There is need for a broad and dynamic definition that allows room for growth and innovation in the industry. Imposing ‘Sin Tax’ should be done in a manner that enables the industry to grow.

The multiplicity of gaming activities makes it impossible to collect the tax. The different approaches with multiple cost options and application distinctively put into question taxation methodology.

Industry players have not, and do not have direct objection to taxation.

What they want is a chance in law that would define gambling as part of the entertainment industry, not a source of income.

Mr Kung’u is former chairman of Kenya Betting, Control and Licensing Board

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