Chemei Nimo (centre), a weekly SportPesa jackpot winner, and her parents
pose with a dummy cheque at their home in Kapsokwony, Mt Elgon last
year. photo | file
It is barely four months after the coming into force of the 35
per cent tax on gaming revenue, and the Treasury is proposing new tax
changes in the gambling industry.
This is through the
Tax Laws (Amendment) Bill, 2018 that the Treasury has tabled in
Parliament for debate and possible approval. The new changes will
require gambling companies to withhold tax on winnings paid to punters
(players) at the rate of 20 per cent.
Approval of the
changes will see a return of a tax that the government first introduced
in 2014 but abandoned in 2016 due to implementation challenges that the
industry faced at the time. It remains to be seen whether these
challenges will have been resolved ahead of the proposed re-introduction
of the tax.
If the tax on winnings is passed, Kenya
will be one of the few countries to adopt a hybrid model of taxing the
gambling industry. This is because Kenya will be taxing both the
gambling companies and the punters at the same time.
Internationally, different countries have adopted different models of taxing the gambling industry.
Some
countries tax gambling companies like any other trading company while
others ascribe different taxes depending on the various gambling
activities, that is, betting, lottery, casinos and prize competitions.
For winnings of the punters, some countries tax them as ordinary income,
others attach a final withholding tax on the payments while others do
not tax the winnings.
In the United States for example,
gambling winnings are fully taxable and a winner must disclose the
winnings in their tax return. One may deduct gambling losses but only if
they are itemised and supported.
However, the amount
of losses one may deduct cannot be more than the amount of gambling
income reported in the return. In the United Kingdom, gambling winnings
are not taxable on the punters.
The gambling companies
are, however, liable to a 15 per cent tax on their gross profits. In
other European countries, tax on punters’ winnings is rare.
Nevertheless,
it is clear that the Kenyan government has resorted to fiscal measures
to address the gambling craze that has swept across the country in
recent years.
The government’s aim is clear; to cure Kenyans from the social ills of gambling.
The
debate as to the morality of gambling as well as the social effects of
the same is well documented especially from a global perspective. In
Kenya, there have been tales of young people gambling away their school
fees and parents neglecting their financial duties after losing money
through betting and so on.
There have also been reported cases of suicides, allegedly as a result of losing money to betting.
There
is now a general consensus especially among the older generation that
gambling is indeed a vice that needs to be dealt with before it destroys
the younger generation.
Existing tax measures do not
affect the punters’ winnings and as such, have limited impact on the
gambling craze contrary to what the government expected.
This may be the reason why the Treasury is proposing the new tax on punters’ winnings.
This may be the reason why the Treasury is proposing the new tax on punters’ winnings.
With
the new tax proposed to be a final withholding tax on payment of the
winnings, punters will have no chance to claim any losses they suffer on
lost bets.
This will definitely make betting and
gambling in general unattractive, potentially reducing the number of
people engaged in gambling.
However, this new proposal also coincides with another one to reduce the tax on gaming revenue from 35 per cent to 15 per cent.
If
passed, this reduction will offer a reprieve to gambling companies.
However, the hybrid model of taxing both the gambling companies and the
punters, may still prove to be a stumbling block to the industry.
Following the introduction of the gaming tax of 35 per cent, in
addition to the pre-existing 30 per cent corporation tax on profits, the
gambling companies relied on volumes to remain afloat.
The
tax on punters’ winnings is likely to bring these volumes down, eroding
the revenues and profitability of the gambling companies.
While
the government has a responsibility to protect its citizens by reducing
the negative social effects of vices such as gambling, the recent
fiscal measures which are likely to spell doom for the industry do not
augur well with the government’s plan to widen the tax base in Kenya.
In
2016, the Kenya Revenue Authority’s commissioner-general, John
Njiraini, told the parliamentary committee reviewing the Betting,
Lotteries and Gaming (Amendment) Bill, 2016 of how the industry had
helped widen the tax base in Kenya.
Mr Njiraini
explained how eight of the licensed betting companies paid a total of
Sh4.7 billion in the financial years 2014/2015 and 2015/2016. He urged
for a balance between finding solutions to the effects of gambling and
ensuring that the businesses continued to operate and thrive.
I
will go out on a limb and say that in spite of the negative effects of
gambling, excessively taxing the industry is not the way to deal with
the gambling vice. Gambling is a social problem that requires social
solutions.
The way other developed jurisdictions have
dealt with the gambling problem is not by over taxing the industry but
rather through other measures, including forming agencies that run
responsible gambling campaigns such as awareness weeks (an annual event
in the UK).
Such campaigns focus on early intervention
and prevention, consumer protection, help and counselling services for
people experiencing problems with gambling, advice on risks of gambling
and how to stay in control.
Other measures are strict
marketing and advertising restrictions such as not to advertise new
customer sign-up offers on TV before 9 p.m. and so on.
Also,
with the popularity of online betting, the betting companies could
easily move their bases elsewhere and will still offer their services to
Kenyans. With the various online payment options such as Visa Card,
MasterCard and the recent linkage of M-Pesa to Paypal, this move is
likely to happen in the not so distant future.
If this
were to happen, the social negative effects that the government hopes
to eradicate through fiscal measures will continue, with the government
losing tax revenues from the gambling companies and the punters in the
process.
The gambling companies reacted to the 35 per
cent tax by withdrawing sports sponsorships whose effect is still being
felt in the various sports disciplines around the country.
It
remains to be seen whether these sponsorships will be restored fully
with the expected reduction of gambling volumes and the reduction of the
gaming tax from 35 per cent to 15 per cent.
It will
also be interesting to see how the gambling companies react to this
latest move. My bet is that the gambling businesses may change their
operating model and delivery channels to continue servicing the local
market, effectively bypassing the proposed taxes.
Thairu is a Tax Manager with KPMG Kenya
No comments :
Post a Comment