In Kenya, the gambling sector, transitioning from a recreational activity to a more significant economic role, is grappling with stringent tax measures. The Betting Control and Licensing Board (BCLB) reports a significant drop in payout ratios from 89.8% in 2019 to 72.8% recently, largely due to increased taxation.
The government has imposed a 7.5% excise tax on betting stakes, recently hiked to 12.5%, and a 20% withholding tax on winnings. Furthermore, betting firms are subjected to a 15% tax on gross gaming revenue and a 30% corporate tax on profits.
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This heavy taxation impacts both the earnings of players and the revenue of betting firms. While the intent is to regulate the industry, the approach might be counterproductive, potentially stifling the market’s growth and reducing the Kenya Revenue Authority’s tax collection from this sector, especially during times when many people are finding cash shortages to be a source of much anxiety.
Despite these challenges, the number of betting firms in Kenya continues to rise, suggesting a resilient yet pressured market.
The State-backed Gambling Control Bill of 2023 introduces further financial burdens on the industry. This Bill proposes a 15% tax on the gross gaming revenue of betting firms, coupled with an additional 1% monthly levy on the same revenue. These measures are part of the government’s strategy to reduce the appeal of gambling.
The revenue generated from these new taxes is earmarked for establishing rehabilitation centres and funding campaigns to educate the public about the risks associated with gambling. This initiative acknowledges the growing reliance on gambling as a source of income, especially among the unemployed.
In stark contrast, the United Kingdom offers a more player-friendly tax environment. Gambling winnings in the UK are entirely tax-free for both casual and professional players. Instead, the tax burden is shifted to gambling operators.
The UK government has successfully implemented a 15% tax on these operators, ensuring revenue collection while not directly taxing players’ winnings. This strategy has proven effective, with the UK government collecting £3.07 billion in 2021/22 and £3.30 billion in 2022/23 from gambling companies.
This approach not only regulates the industry but also ensures a steady stream of revenue without overburdening the players.
Brazil, a country that is in the process of regulation, represents a moderate stance on gambling taxation. The country has introduced a 12% revenue tax on online betting companies and a 15% tax on winnings from online casino games and sports betting. The charge will be made for the total bets per year, on the amount that exceeds R$2,112 (KES68,875).
This model seeks to regulate the industry responsibly, addressing issues like money laundering, while ensuring the government’s share in revenue. Compared to Kenya, Brazil’s approach is less aggressive towards players, striking a balance between regulation and market viability.
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While the UK model is certainly been effective, the market is much more mature and therefore, it is much more feasible to remove any tax burdens from the player.
Kenya’s current trajectory in gambling taxation, especially with the new proposals in the Gambling Control Bill of 2023 and the existing high tax rates, suggests an increasingly restrictive environment. While the intent to regulate the industry and address social issues is commendable, the high tax burden on players and operators might lead to unsustainable market conditions.
Adopting elements from the UK’s focus on operator taxation and Brazil’s balanced approach could offer Kenya a more sustainable path. A strategy that ensures government revenue, promotes responsible gambling and maintains the industry’s viability is crucial. This balanced approach could foster a healthier gambling environment, mitigating the risks while ensuring the industry’s contribution to the economy.
