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GROSSLY MISUNDERSTOOD

Why gambling tax measures need rethink

Industry wants law to define gambling as entertainment and not a source of income.

In Summary

• 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.

A man analyses the odds at a popular betting site.
GAMING: A man analyses the odds at a popular betting site.
Image: VICTOR IMBOTO

Sports betting, as an industry, has experienced exponential growth globally to become a lucrative sector with huge returns for investors and economies.

However, in Kenya, the benefits are yet to be realised. Whereas the West, from where sports betting was imported, has devised ways of reaping the benefits thereof, Kenya (and Africa at large) is still struggling with how to consolidate these economic gains as well as regulate the industry.

Measures so far taken have either yielded no or very little results economically. These include efforts to impose taxes 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 the sports betting industry is worth Sh200 billion, which is not the actual case.

It is true that the industry has in five years grown in leaps and bounds, but the Gross Gaming Revenue (GGR) has maintained the 7.5-12 percent threshold. To put this into perspective, the Central Bank of Kenya (CBK) 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.

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.

It is true that the industry has in five years grown in leaps and bounds, but the Gross Gaming Revenue (GGR) has maintained the 7.5-12 percent threshold. To put this into perspective, the Central Bank of Kenya (CBK) 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.

Much of what is held in stakeholders' accounts are investments for payouts to winners. Taxation of investments is illegal and contravenes business principles.

There's need, therefore, for a 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 (Sh51.4 billion) because of such fundamental flaws.

 

According to a 2013 estimate by Global Betting & Gaming Consultants, gambling revenue worldwide stood at $430 billion (Sh44.21 trillion) in 2012. It remains an increasingly important part of the global economy.

The PWC report of 2016 puts the annual gross turnover of the industry in Kenya at $20 million (Sh2.1 billion). 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 begun in 2017 with the imposition of 20 per cent withholding tax. 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, there has seen a different tax approach and design. The volatility of such unilateral decisions, exclusive of stakeholders' input, further destabilise the sector as they make trends unpredictable and hence limit investment viability.

President Uhuru Kenyatta is on record stating that the government wants to create an investment climate that enables those putting their money into 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 percent tax on GGR. It would later change to 15 percent tax on GGR, 20 percent withholding tax, and recently the proposed 10 percent excise tax on wagers.

This annual back and forth ritual creates uncertainty for investors not only in this industry but probably in all other sectors of the economy. 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.

Unreasonable tax demands that would push Kenyans into foreign gaming are unproductive. Such demands end up enriching foreign firms while affecting local revenue collections. In addition, they result in loss of employment opportunities.

The worst case scenario is the proliferation of illegal gaming operations that make policing or enforcement of standards an uphill task. This is before one considers the higher risks of gaming addiction to the vulnerable and poor that such unregulated gambling portends.

It is clear that 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.

We must remember that betting, especially gaming and casinos, employs 5,000 people, majority of whom are Kenyans, and provides crucial foreign exchange.

Immediate former chairman, Kenya Betting, Control and Licensing Board