Treasury ill advised on 50% tax levy against betting industry

Treasury ill advised on 50% tax levy against betting industry

Treasury ill advised on 50% tax levy against betting industry

By Ooko Victor
The greatest highlights 0f the March 31st reading of the proposed Budget Policy Statement 2017/2018 was the 50% flat rate tax slapped on the betting, lottery, and gaming industry, as presented by Treasury CS Henry Rotich. This was a huge rise from the current 3-month-old tax rates that stand at between 7-15%. This article will analyze the possible implications of this tax measure if at all it is implemented. It will also seek to provide a comparative analysis of how other countries have managed to get the best from the industry without taxing firms out of business.

The Kenyan gambling industry is regulated by the Betting Control and Licensing Board (BCLB), Activities regulated include lotteries, casinos, sports betting, prize competitions, and promotions. Gambling is seen by many as a route to easy money. The industry has seen immense growth with the entry of sports betting and especially the East African giant Sportpesa, who are the shirt sponsors of premier league club Hull City. It must however not escape the minds of readers that gambling is a game of odds. The probability of losing is as much as that of winning, for both the gambler and the betting firms. However, the industry continues to remain a soft target for Treasury, with the justification being the social ills that accrue from it.

The Betting, Lottery, and Gaming (Amendment) Bill, 2016, sponsored by Deputy Minority Leader Jakoyo Midiwo (Gem) was shelved after recommendations by the Labour Committee, with the Kenya Revenue Authority boss, among others, claiming that the regulations would interfere with the increased collection of revenue. It is, therefore, illogical that barely a month later, Treasury banks on the same overtaxing recommendations that KRA Commissioner General John Njiraini argued would drive investors across borders, leaving Kenya with huge losses. What has changed in a span on 1 month?

Football fans take part in live betting at Betin outlet in Nairobi|Daily Nation

To begin with, a 50% taxation on gross income is unrealistic for any business out there. The betting industry, like any other industry, makes profits as well as losses. A majority of these businesses have been with us since the inception of the industry in 1969. The only change has been in the online betting platforms that began in earnest in2014 with the entry of Sportpesa. If we are not keen to run them out of business, then a more realistic tax scheme would be a good place to start from. Proper regulations can also be devised to help the industry develop a more socially responsible sector. At no time, however, will a stringent tax regime replace proper regulatory structures that can only be established by the legislating authority. The United Kingdom, for instance, levies a 15% gaming duty on all bets placed as well as additional betting duties payable. This has seen a tremendous rise in the contribution of the industry to the GDP

Sportpesa shirt sponsors of National Men and Women Rugby teams

The Kenyan betting industry is currently valued at around Ksh.3 billion. It has created jobs for very many Kenyans that would otherwise be jobless. In addition to that, the industry has continued to support the sporting sector, greatly improving careers of local sportsmen across various disciplines. Sportpesa for example, are the official sponsors of the Kenya Premier League, a deal worth Sh450 million, as well as the Kenya Rugby Union (Sh607 million), sponsoring local teams like AFC Leopards (Sh225 million) and Gor Mahia (Sh325 million) which had been experiencing financial challenges and finding it almost impossible to honor international matches. The Kenya National team has also seen great improvements as a result of continued exposure, having played a match with premier league side Hull City at the KCOM Stadium in the UK and a return leg slated for Nairobi. Other sponsorships have included the annual Koth Biro grassroots tournament for whom Sportpesa was the official sponsors for the 2016-2017 edition.

The argument by the Treasury CS Henry Rotich, therefore that the revenues collected will be used to expand the sports industry, bearing in mind the casual manner with which the sporting industry is treated by the government is alarming. The National Team, for instance, was a shadow of itself before the entry of Sportpesa. The premier league was wanting and it is only the entry of the new Kenya Football Federation (KFF) Team and sponsors like Sportpesa who have helped steady the ship. The status of sporting facilities in the country is another indication that the Kenyan government is dragging its feet in the promotion of youth and sporting activities in the country. So much so that Kenya finds itself unable to host continental sporting events requiring the use of various stadia as has been the case with the African Cup of Nations. Increasing taxes on the betting and gaming industry is understandable, but not to the detriment of already flourishing sporting activities.

Gor Mahia Players in Sportpesa sponsored shirts| Gor Mahia

Senior Content Editor at SportPesa Lola Okullo lamented that in addition to normal expenses such as salaries and rent licenses, gaming firms also incur other costs such as fees for software needed for their operations which are very costly. Other taxes levied beyond the proposed 50% on gross revenue include Paye as You Earn (PAYE), Value Added Tax (VAT) and Income Tax.

Kenyan Premier League Head of Logistics Frank Okoth and Kenya Rugby Union Secretary General Geoffrey Gangla have on various platforms attributed the rapid growth experienced in various sports discipline to the partnership with betting firms which touches on the very core of the game’s development and sustainability.

I welcome the recent comments by President Kenyatta stating the commitment of the government to a constructive dialogue over the matter. Indeed, consultations among stakeholders should have been considered before the public relations gimmick attempted by the Treasury CS. A comprehensive research on the negative effects of the gaming, betting and lottery industry is also necessary to develop proper mechanisms of minimizing them while also gaining from the tax contribution the industry provides.  It is either we opt for this amicable option, or risk closure of the betting industry in the country, leading to massive loss of jobs as well as uncertainty in the sporting industry currently cushioned by betting firms. Another less expensive option for the firms, as Winny Chepkemoi outlined in her article, A Retrospective look at Kenya’s 2017/2018 Budget, is a shift to increased illegal and informal betting activities in the black-market.

The writer is a Research Consultant with Savic Consultants in Nairobi.

Great constructive analysis Bwana Ooko. The proposed tax regime by the CS National Treasury is a perfect example of a perverse incentive. This Sin Tax was proposed in the guise of restoring morals among the betting and gambling enthusiasts. Betting, gaming and gambling may be touted as typical amoral economics but its benefits/gains, through revenue collected by KRA, are socialized via taxation. A reasonable tax regime should be considered in view of the theme of the 2017/18 Budget Policy Statement.

Thanks a lot Mr. Sitati for your sentiment. A research into the said effects and their consequences can help augment the argument by Treasury. As it stands, the proposal reeks of witch hunt with no constructive basis.

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