KRA targets record Sh16bn in betting taxes as experts see field of landmines

The taxman is looking to collect a record Sh16 billion in excise taxes from betting, gaming and lottery businesses in the next financial year as it tightens revenue leakages in the sector.

The new tax target for the industry is Sh250 million higher than collections expected in the current financial year. If realised, betting, gaming and lottery will be one of the fastest growing pockets of tax revenue having grown from just Sh2.9 billion in the financial year 2020/21, an indication of the low-hanging source of tax the government has increasingly tapped to meet its revenue needs. These higher collections will be realised through proposed amendments to the Income Tax Act and the Excise Duty Act.

The Finance Bill 2023 proposes to amend the Income Tax Act to provide that definition of the word “winnings” includes the amount wagered implying that punters will be subject to withholding taxes on the gross amount paid as opposed to the present situation where they are only taxed on the amount won over and above the amount staked.

The Bill also seeks to amend the Excise Duty Act to increase the tax on stakes from 7.5 percent to 20 percent.The Treasury proposals seek to address the challenges it has previously run into in the corridors of justice regarding the definition of the word ‘winnings’ within the context of betting, gaming and lottery.

In the case Commissioner of Domestic Taxes versus Pevans East Africa and six others in 2019, the High Court ruled that winnings refer to “payouts by the licensee but do not include amounts staked by the better”.

Tax pundits now say that even as presently worded in the Finance Bill 2023, the matter is bound to run into headwinds based on the canons of taxation.

“There are two potential challenges in this. One, the High Court has already given a clear definition aligning with the ordinary understanding of winnings in its determination in the past. Two, seeking to tax a stake is equivalent to taxing an entrepreneur’s capital yet fundamentally, the Income Tax Act seeks to tax income and not capital,”

– says Robert Waruiru, managing partner at Ichiban Tax Advisory.

In its note to clients Anjarwalla and Khanna equally flagged the fact that the proposal in the Finance Bill 2023 goes against judicial precedent on the scope within which the taxman can reach in collecting excise tax from betting.

“It should be noted that there have been a number of court decisions at the Tax Appeals Tribunal and at the High Court, which have described ‘winnings’ as being net of the amount wagered or staked. The legislative amendments now appear to seek to amend this position through a change of law”, – the note states.

The proposed changes to the excise tax come at a time when the Kenya Revenue Authority (KRA) has integrated its systems with those of betting firms to ensure real-time collection of tax with the first phase of the integration onboarding 16 betting firms.

Currently, the KRA collects an average of Sh120.4 billion in excise taxes yearly, with financial services transactions, airtime and beer accounting for the lion’s share at 26.6 percent, 25.6 percent and 17.8 percent, respectively.


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