Betting firms to feel pinch as Ruto pushes for tax scrutiny

Monday, October 3rd, 2022 05:58 | By
Sports betting.
Sports betting. PHOTO/Courtesy

President William Ruto has directed Central Bank of Kenya (CBK) Governor Patrick Njoroge to develop policies for regulating online betting companies to enable them pay their fair share of taxes. He said currently, the online companies are operating in an opaque space that needs to be streamlined.

“That space needs much clarity and I am happy that the Central Bank of Kenya is taking steps to bring the actors in the online betting space to regulations so we can make them much more accountable,” the Head of State said. Ruto spoke when NCBA, KCB Bank and Safaricom announced a 50 per cent tariff reduction on their Fuliza overdraft facility last Wednesday. The short-term loans of between 11 to 14 days have enabled many Kenyans to finance their daily financial requirements.

In the absence of gainful employment, most Kenyan youth have become addicted to online betting, with a GeoPoll survey conducted in 2019 indicating that the activity has been popularised by football with most wagers accessing money through digital loans.

Withholding tax

Currently, a 20 per cent withholding tax is levied on winnings and a 15 per cent tax on the gross gaming revenue.  Kenya Revenue Authority (KRA) statistics indicate that gross gaming revenue rose by 13 per cent to Sh3.3 billion in the year ended June 2022 from Sh2.9 billion the prior period.

The 2021 Safaricom financials indicate that Kenyans spent Sh169.1 billion on betting via M-pesa during the year, representing a 23.8 per cent jump from Sh136 billion they spent in 2020.

 However, the bone of contention the head of state sought to address appears to be that most sports online betting companies do not disclose the full amount, and are only taxed on what they declare.

The under-quoting of the amount of taxes payable by most Kenyan firms across nearly all the sectors remains a top challenge that the taxman is still scratching its head over to seal revenue leaks.

KRA is currently rolling out the compulsory use of Electronic Tax Registers (ETR) machines among traders to help it scrutinise Value Added Tax (VAT) and tame under-quoting of taxes, commonly done through mis-invoicing of goods or services sold, produced, or rendered.

But including a similar  technology in digital services such as betting remains a grey area for the Times Towers, forcing it to only rely on alternative means such as audits to cut instances of under-declaration of taxes in the thriving gambling industry.

The challenge has further been compounded by the divergent nature of gambling industry, which comprises sports betting, casino gaming, and lotteries, some of which involves use of cash.

Sports betting, the most popular form of gambling in Kenya, mainly uses digital payment methods like mobile networks or paypal, making it easier for the taxman to track revenues. The taxman currently demands access to the platforms where betting firms operate to establish the amount of taxes payable. Robert Waweru, tax expert at Ichiban Consultant said it is going to be difficult for the betting firms to evade taxes if KRA heightens access to their database.

Betting exercise

“Any betting exercise that is not involving cash is going to be very difficult to hide,” he said. The rising number of betting firms and lotteries licensed to operate in Kenya, which increased to hit 132 as of September 2022, points to how the industry is booming despite the government’s stringent policy to curb the business through higher taxation and tighter regulation.

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