KRA Reluctant to Reduce Tax on Betting Prizes

Kenya Revenue Authority (KRA) will challenge the judgement of the Tax Appeals Tribunal (TAT) delivered on 6th November 2019 in favour of the betting firms.

Seven betting firms, including SportPesa and Betin, had filed a case at the TAT challenging KRA’s interpretation of the term ‘winnings’ as was amended by the Finance Act 2018. The betting firms insisted that KRA had gotten wrong the definition of the term winnings in its implementation of the 20% withholding tax on winnings.

KRA’s definition of winnings meant that punters would either make a profit or a loss based on the amount they win from a bet. For instance, is a punter places a bet with a stake of Sh 100 and wins Sh 20, the withholding tax would be 20% of Sh 120 (Sh 24) which would be a loss to the punter despite winning the bet.

The betting firms were proposing that the 20% withholding tax be deducted to the profit earned excluding the stake. In the same case example, the punter will be deducted 20% of Sh 20 which would see him make a profit.

The Tribunal ruled in favour of the Betting Firms and found that the term “winnings” as defined at Section 2 of the Income Tax Act does not include stakes placed by a Punter and that if the legislation intended for winnings to include stakes placed, it would have categorically stated so.

However, KRA disagrees with TAT’s decision for among other reasons, the fact that it departed from the decision by Justice Hatari Waweru’s in a Meru High Court Case in which the Learned Judge had found that there was no ambiguity in the interpretation of the term “winnings” as defined by the Income Tax Act. In arriving at its decision, the TAT found that Justice Hatari Waweru’s decision was inapplicable hence not binding on it because it had not delved into the definition of the term “winnings”.

Further, KRA is aggrieved by the Tribunal’s finding that it had no legal backing in demanding Withholding Tax from the Betting Firms and the manner in which it had enforced collection of the tax. KRA has commenced the appeal process by filing a notice of appeal which it did on 8th November 2019.

Punters’ Complains

Punters were first to complain about the introduction of the 20% withholding tax saying it reduced the winnings. Being among the first betting companies to implement the withholding tax on winnings, Betika was on the receiving end of punters’ furious complaints.

However, as other betting companies resumed operations, punters understood that it was a directive from the taxman. The withholding tax has led many to completely stop betting while others resulted in using international firms that are not bound to the withholding tax.

It is also understood that SportPesa and Betin closed their Kenyan shops because they did not agree with the introduction of the withholding tax. These companies’ victory in court last week hinted at a comeback but KRA’s move to appeal the decisions pushes possible return date further away.