Verdict looks set to tilt ongoing disputes.
Online sports betting companies such as SportPesa grew rapidly, riding a wave of enthusiasm for sports to achieve combined revenue of Sh204 billion last year.
However, that has sparked concern in the government about the social impact of betting. In May, the country introduced new gambling regulations, including banning advertising outdoors and on social media.
The Kenya Revenue Authority (KRA) suffered a blow on Wednesday after a tribunal ruled that a punter’s stake in a bet cannot be charged 20 per cent tax on winnings.
The Tax Appeals Tribunal sitting in Nairobi ruled that the 20 per cent tax should be charged on the positive difference between the payout made and the stakes placed in a given month.
KRA has been demanding billions of shillings from betting firms based on the gross amount of the payout to the punters, including the staked amount.
The tribunal also placed a greater responsibility for payment of the tax on the punters, partially shielding the betting firms from prosecution and aggressive pursuit of the 20 per cent withholding tax.
The tribunal’s verdict now looks set to tilt the ongoing tax dispute between KRA and more than 20 betting firms — including SportPesa and Betin Kenya — which have been denied operating licences for the year starting July. KRA has been demanding Sh61 billion from the betting firms for the period between May 2014 and March 2019.
SportPesa on September 27 announced it was halting operations due to a drastic rise in taxes on betting stakes and unresolved disputes with KRA.
Betin Kenya also ceased its operations, citing the heavy taxation as the main reason.
The Treasury last year reintroduced the 20 per cent tax on winnings, and amended the definition of winnings to include the stakes, sparking the dispute with the betting firms.
The earlier law provided for 20 per cent tax charged on net winnings, which is arrived at by deducting the amount staked by the punter. But this was revised to include gross winnings.
“The definition removed the provision for deduction of amounts staked. This amendment was effective July 1, 2018,” KRA said in its documents.
The betting firms are relying on a previous definition before the Finance Act 2018, and interpret winnings as “the positive difference between the payout made and the stakes placed in a given month, for each player.”
Using the same example, a player who bets Sh1,000 and wins Sh100 would pay withholding tax of 20 per cent of the Sh100 winning. The player would leave with Sh1,080, which includes his Sh1,000 original stake and Sh80 winnings.