A number of friends have asked me how betting is currently
being taxed in Kenya. I have seen a
number of discussions on both print and social media on this subject and there seems to be a little
confusion on how it’s being done. From whom should the tax be chargeable? What is the
correct rate of tax? is there withholding Tax on winnings?
First, taxation on winnings has evolved in the last decade.
The Government has struggled to arrive at the best approach for taxing this
sector which is a multi billion-shilling industry. Its main agenda is to raise
revenue as well as discourage betting obviously because of the well known negative effects. Different jurisdictions have adopted different styles.
For simplicity I will divide it into two parts:
1 1. Taxes on Bookmakers (companies)
There are four categories provided for under the Betting, Lotteries and Gaming Act.
v
Betting tax – payable by the betting company at
the rate of 7.5% (sec 29A) of the gross turnover less the amount paid to
customers as winnings.
v
Lottery tax – payable by the lottery company at
the rate of 5%( Sec 44A) of the lottery turnover.
v
Gaming tax- payable by the gaming company at the
rate of 12% (sect 55A )of the gross
turnover less the amount paid to customers as winnings.
v
Prize Competition Tax – chargeable on the
cost of entry
to a competition
which is premium rated
at the rate
of 15% (Sec 59B ) of the
total gross turnover.
Note all the three taxes have been standardized to a rate of 50 % w.e.f 1st Jan, 2018 (Refer
to section 26-29 of the Finance Bill 2017). All these are paid by the
bookmaker to the Collector (KRA) by the 20th of the month following the month of collection( just
like VAT).
2 2. Taxes on punters (winners)
Previously withholding tax at the rate of 20% gross winnings was
chargeable. Through the finance Act 2015 the rate was reduced to 7.5% w.e.f 1st
Jan 2016. Later, through the Finance Act 2016, this was removed from
the Income Tax Act and the model of taxing bookmakers and not punters was adopted.
The rates are as explained above.
The Big Question,
Can then Samuel declare the winnings in his income tax return and pay tax at
the graduated individual scale? Please note
that individuals don't pay taxes at the rate of 30%- that’s discussion for
another day.
The simple answer is, although in my opinion it would be necessary to
declare the winnings in the return, the money may not be taxed. Whether
winnings are treated as taxable income is an issue that has been contested a
lot. There have been a number of case laws on this subject. The fundamental
question is whether winnings should be treated as taxable income. This would
also mean that the punter (winner) be allowed to offset his losses against that
particular income which is the case in some jurisdictions. Some have argued
that betting is more of a hobby than a business. Post 2017, Income Tax Act
does not treat winnings as taxable income. Betting, gaming and lottery services
are also exempted from VAT (refer to the first schedule).
Conclusion. Samuel may just end up keeping all his money. What? I know,
and that also explains why when you “sportpesa” and win that 3k, no taxes are
withheld.
