This archive report was first published on 10 September 2019.
Clearing Grey Areas in Kenya's Gambling Tax Law ¶
Published on September 10, 2019, in The Standard, this article highlights the need for Kenya to clarify its gambling tax laws.
Adam Smith's four rules of taxation, set in the 18th century, remain relevant today. The first rule requires citizens to contribute to the government in proportion to the revenue they enjoy under its protection. The second rule states that taxes should be certain and not arbitrary, with clear payment terms and amounts. The third rule emphasizes that taxes should be levied at a time or in a manner convenient to the taxpayer. The fourth rule aims to minimize the burden on taxpayers while maximizing revenue for the government.
Kenya's tax system, however, is biased towards the ability-to-pay principle, ignoring the benefit principle. The benefit principle advocates for equality between what taxpayers pay and the benefits they derive from taxes. The government must raise revenue through taxes, but these taxes must be fair, reasonable, and cost-effective.
The two most difficult-to-understand taxes in Kenya are capital gains tax and gambling tax. The rule is to tax income, which is the difference between revenue and expenses as defined in tax laws. The focus here is on tax on gambling wins. One of the cardinal rules of taxation is equity, and the tax law on gambling downplays this rule.
Up to 2018, there were no taxes on winnings, yet the Betting, Lotteries and Gaming Act (1966) required tax to be chargeable on gaming revenue at a rate of 15 per cent. The law now requires betting companies to withhold winnings at a rate of 20 per cent. This means that if you bet with Sh10,000 and win only Sh8,000, you are paid Sh6,400, and the Sh1,600 is remitted to the Kenya Revenue Authority.
The gambling income tax law is not clear on winnings or ignores how gambling losses are to be accounted for. This arises from the argument that gambling cannot be a trade or business. Unfortunately, for too many Kenyans, gambling is a business, and professional gamblers exist. In the US, gambling income is taxed at a flat rate of 30 per cent, but gamblers are allowed to deduct gambling losses unless they are non-residents.
Our law should make a distinction between recreational gamblers and professional gamblers. Distinction gamblers must be visible in terms of the difference in tax rates. In the UK, winnings from gambling are not taxable, and thus losses cannot be deductible. In Germany, winnings are taxed at a rate of five per cent. In India, gambling is elaborately defined, with individual states enacting legislation to govern gambling and price competition laws.
Service providers making payment to winners must withhold tax of 30 per cent. In South Africa, the law recognizes professional gamblers - a gambler who has no other job and is taxable. They must, however, declare their expenses income. Here, gambling income is considered nontaxable if it is an occasional hobby, but tax can apply to control bad behavior.
