This archive report was first published on 9 August 2019.
On August 9, 2019, the government announced that it would not be renewing operating licences for gambling companies and ordered the suspension of their M-Pesa paybill accounts and short codes, citing a tax claim dispute of Sh61 billion.
The dispute revolves around the interpretation of the word 'winnings' in Section 34(1), 34(2), 35(1), and 35(3) of the Income Tax Act, which states that all winnings shall be subject to a 20% withholding tax.
However, betting firms argue that KRA is erroneously lumping together the customer's stake and the winnings, and that the withholding tax should only apply to the winnings, not the stake.
According to economists, KRA's position is flawed, as it would lead to taxing consumption before the consumption happens, resulting in winners receiving lesser amounts than what they staked.
Studies on gambling taxation reveal that low-income households contribute relatively more gambling tax revenue in relation to their income.
Kenya's average spend on betting is Sh1,550 a month, with another 15% betting tax levied on betting firms' gross gaming revenues, and a further 30% corporate tax.
Experts argue that high gambling tax is not good economics, as it leads to low betting activities and reduced tax revenue collection, and that KRA should review its stance to avoid being on the losing end.
Mr. Watima, an economist, emphasizes that the gambling sector should attract tax rates over and above the ones applied to other businesses, but not at the expense of low-income households.
