Why if you bet with Ksh1K, and the odds are 1.2, you won’t win Ksh1, 200 but Ksh960

Last week, the Kenya Revenue Authority (KRA) told the Senate Committee on Justice Legal Affairs and Human Rights that the suspended 27 betting firms in Kenya owe the State at least Ksh61 billion in withholding tax.

The KRA said it has since informed the Betting Control and Licensing Board (BCLB about that colossal figure.

Betting firm, Betika, was recently called out on Twitter over claims that the eventual earnings of a gambler are way lower than what the odds suggested the punter would get should his or her prediction be correct.

For many who were seeking to find answers as to why that was the case, we seek to explain.

-Withholding tax-

The State recently implemented the deduction of withholding tax from bet winners.

What that means is that the taxman is calculating a 20 percent withholding tax on all the money in a gambler’s online account.

When the tax is deducted, it does not put into consideration what was your staked amount or the initial money you plunged into a bet – let’s say Ksh1, 000 – and, what is your win – let’s say Ksh200 on a bet, whose odds are 1.2.

This means, the total, Ksh1, 200, will be subjected to the 20 per cent tax.

Twenty per cent of Ksh1, 200 is Ksh240. That means, KRA will take Ksh240 from your gross win of Ksh1, 200 to leave you with Ksh960, which is Ksh40 less than the original amount – Ksh1, 000 – that you staked.

A letter by KRA to the Betting Control and Licensing Board (BCLB), seen by K24 Digital, had in June indicated that nine of the suspended 27 betting firms owed KRA Ksh43,545,363,681 in withholding tax on winnings.

“Betting companies, are required to withhold winnings at a rate of 20% as provided by Sections 10(g), 34(1)(m), 34(2)(i), 35(1)(i), 35(3)(h) and Paragraphs 3(i) and 5(i) of the Third Schedule, Head B of the Income Tax Act, Cap 472. This means that if you place a bet and win Ksh50, 000 you will receive Ksh40,000. The balance of Ksh10,000 is withheld by the betting company and remitted to KRA,” says KRA.

Betting tax is chargeable on the gross gaming revenue (GGR) of a bookmaker at the rate of 15 per cent as provided by Section 29A of the Betting, Lotteries & Gaming Act, 1966.

Gross gaming revenue means gross turnover less the amount paid out to the customers as winnings.

The bookmaker (betting firm) remits 15 per cent of the GGR to KRA on the 20th of every month. Similarly, winnings from casinos, lotteries and prize competitions are taxed at the rate of 15 per cent as provided by sections 55A, 44A and 59B of the BLG Act respectively.

A bookmaker is a person who: is in the business of receiving or negotiating bets on his own account or on behalf of others; a person who receives and negotiates bets. In the Kenyan case, the betting companies are the bookmakers.

-Invest Ksh1, 000 and win Ksh904-

On May 12, 2019, a game between Brighton and Manchester City saw one of the betting firms give 12.81 for a win in favour of Brighton and 1.13 in favour of Manchester City. That meant if a gambler staked Ksh1,000 in favour of Man City and it actually won, his or her e-wallet would reflect Ksh1,130 made of Ksh1,000 initial stake and Ksh130 winning.

Using the KRA interpretation of tax on winnings means that the player incurred Ksh226 in withholding tax, leaving them with Ksh904 — a loss position despite winning.

A player would incur Ksh26 in tax at the rate of 20 per cent of the winning and remain with Ksh1,104 if the KRA was to interpret winning as Ksh130.

“The current interpretation that is used by the Authority has the effect of taxing a player’s stake (investment) and therefore making our business completely unviable and will surely lead to business closure,” SportPesa CEO, Ronald Karauri, wrote to the KRA in May, 2019.

-Failed bid to declare withholding tax illegal-

An attempt by a gambler to have the 20 per cent withholding tax declared illegal suffered a blow on Friday, August 9, after the High Court in Nanyuki ruled in favour of the Kenya Revenue Authority.

A punter, George Lesaloi Selelo, had last year moved to court arguing winnings were not an income and should not be subjected to taxation.

His petition was enjoined with that of Betway, who were also seeking to have the withholding tax declared unlawful.

Selelo had on October 12, 2018, filed a petition before the High Court in Nanyuki seeking for orders of declaration that winnings from betting, lotteries and gaming are not income, and, therefore, should not be subject to tax under the Income Tax Act.

High Court Judge Hatari Waweru sitting in Nanyuki delivered the judgment on Friday, dismissing the petitions.

“I find no merit in these two petitions and they are hereby dismissed. The petitioners have challenged the definition of winnings in Section Two of the Income Tax Act amended by the Finance Act, 2018. The intention of the legislation in enacting a new definition was to widen the tax base. I do not find ambiguity or un-constitutionalism in the new definition of winnings at all,” said Judge Waweru as quoted by The Standard.

“Taxes are not meant to be fair. They are always a burden that the society must bear, and which members of the society must share equitably. It is a constitutional obligation by legislation. The impugned provision of the Finance Act 2018 and other laws are thus not unconstitutional,” added the judge.

-SportPesa cancels sponsorships-

This comes even as SportPesa announced Friday evening that it has cancelled all the sponsorship arrangements it has with Kenyan sports teams.

The gaming firm, which controls a bulk of the Kenyan betting population, says “extremely challenging business environment for the past couple of months, has brought immense pressure on the business, necessitating a reevaluation of some plans”.

“In light of these developments, we regrettably wish to announce that due to uncertainty of this situation, SportPesa will be cancelling sports sponsorship effective immediately,” says the firm in a press statement released Friday, August 9.

Sportpesa is among the 27 betting firms in Kenya whose operating licenses were not renewed by July 1 over claims of tax non-compliance.

In Kenya, SportPesa sponsors, among other teams, local football champions Gor Mahia and their bitter rivals AFC Leopards.

The firm also sponsors local men’s football league, the Kenya Premier League, among other gaming activities.

In April this year, Sportpesa renewed its sponsorship of Gor Mahia and AFC Leopards.

“Our dedication and commitment to the development of sports in Kenya continues. We are proud to announce our return to local sponsorships with these key football industry players.” said Sportpesa in their social media pages.

KFF, according to SportPesa in April this year, was allocated Ksh69 million in a sponsorship deal.

The KPL received Ksh259 million, whereas Gor Mahia received Ksh198 million.

AFC Leopards, on the other hand, bagged Ksh159 million as part of the sponsorship arrangement.

SportPesa began supporting the local football teams, among other sporting activities, in 2016.

“For now, we remain positive that the current situation will be resolved amicably and urgently, and we continue to seek the goodwill of all actors towards normalising the environment for the gaming industry,” said SportPesa in its statement.