Kenya Revenue Authority maintains hard stance on betting tax model

Kenya Revenue Authority (KRA) appears to have taken a hard stand in the impasse pitting it and the Betting, Control and Licensing Board (BCLB) against gaming firms after KRA Commissioner Elizabeth Meyo insisted that the companies must pay tax on the stake and wins.

She, who together with the industry players appeared before the Senate Committee on Justice and Legal Affairs over the row that has seen firms denied licences, maintained the taxman will implement the Finance Act 2018 according to its interpretation.

Meyo said the law on taxation of the betting sector, introduced in 2014, has been evolving and it currently demands that the firms pay taxes on the payout, which according to her means the stake plus the win.

“The Tax Amendment Act 2018 actually defines winning as the net, that is the stake, less the winning.

 This was subsequently changed to mean the pay out but without indicating that it is the winning less the stake.

 This is the law which KRA has been trying to enforce thus creating a rift between the industry and the authority,” she said.

Meyo told the Nandi Senator Samson Cherargei-led committee that the firms had refused to comply and maintained that KRA will enforce it, adding they had tried to engage the players without success.

But the players, led by Pevans East Africa Ltd, which trades as SportPesa, argue that the taxman is demanding unreasonable amounts in tax, which Meyo said stand at Sh61 billion in arrears, arguing the move is akin to killing the industry since they will also amount to losses to bet winners.

The firms also argue that KRA does not have the mandate to close a business as a way of seeking tax collection, but instead it should look for a legitimate way of collecting or recovering the revenue in question.

Betting firms had earlier moved to court and obtained injunctions barring BCLB from interfering with their operations or stopping them from continuing with business after the expiry of their 2018/2019 licences on June 30.

SportPesa chief executive Ronald Karauri, in a memorandum to the Senate, said what KRA’s interpretation means is if a player places a successful bet of Sh1,000 and wins Sh100, withholding tax will be applied on Sh1,100 and the winner will end up paying Sh220 which is a loss of Sh120.

Tax interpretation

But with the interpretation provided prior to the 2018 Act, that winning is a positive difference between payout made and stakes placed, if a player places a successful bet of Sh1,000 and wins Sh100, the withholding tax will be applied on Sh100 and the winner would pocket Sh1,080.

“KRA’s  interpretation is “massively inflated, higher than the total tax paid since inception, and farther than our total revenue for the year 2018,”he said.

Betting firms are accusing BCLB and KRA of frustrating the renewal of their operating licences in total disregard of court orders.

Karauri said that the tax dispute is one of the reasons why they have been denied licences in what they term as “blatant disregard of court orders” since the dispute is pending before the Tax Appeal Tribunal. 

Karauri said the demand of evidence of gaming and the withholding tax payment as an additional requirement of the renewal of their operating licences is illegal.

KRA, in a letter dated June 20, and signed by Kigen T.K, recommended to BLCB to withhold operating licences for nine betting firms over outstanding taxes amounting to approximately Sh43.5 billion.

The letter addressed to the board’s director, Kigen, who is stationed at the domestic taxes department which handles the betting and gaming sector, was a response to a query by the board on the amount of tax paid by the firms and their compliance rate.

Defaulting firms

Kigen placed Sportpesa as the highest defaulter, with an outstanding tax of Sh22.1 billion followed by Gamode Ltd which trades as Betin (Sh17.6 billion), Shop and Deliver (Betika) (Sh2.1 million) and Gaming International (Sh1 billion).

BlueJay which trades as Betway was accused of not remitting Sh257.6 million, PremierBet (Sh100 million), Oxygen 8 East Africa (Sh52 million), Acumen Communications which trades as Mcheza (Sh43 million) and Mozzartbet (Sh12.4 million).

But Karauri, in the memorandum to Senate, said the disputes were still subject to proceedings before the High Court and at the Tax Dispute Tribunal.