The Betting Licensing and Controlling Board (BCLB) has polished its taxation bowl with a raft of new levies targeting gaming and lotteries. The new tax measures will see licensees pay new levies on earnings in addition to the existing taxes such as income tax and withholding tax, in instances where the latter applies such as annual dividend.
First, let us be clear that as an industry player we are not opposed to taxation. Spirited collection efforts by the Kenya Revenue Authority (KRA) over the last decade have resulted in increased revenues for the government leading to benefits such as increased road construction and upgrades, a rise in electricity generation and other infrastructure projects.
Additionally Kenya has made great strides in social investment such as free maternal healthcare and free primary education, all of which have been made possible by adequate taxes. Furthermore, it is the duty of every income-earning Kenyan and business to contribute their fair share of taxes and this brings me to my point.
To pay or not to pay is not the question, rather, just how much should lottery and gaming operators pay is what we should ask ourselves. Regulators familiar with the Laffer Curve in economics know that as the taxation rate increases so does government revenue but it reaches a point where higher rates yield lower revenues.
Simply put, it reaches a point in every business or for individuals, where there is no incentive to carry out an economic activity since as the taxpayer you are giving out so much of what you have made that what is left is hardly enough to justify your efforts.
Unfortunately the plethora of taxes that are being meted out on operators are doing exactly what the Laffer Curve shows that operators are being pushed to this tipping point.
It may appear that gaming and lottery licensees are low hanging fruit due to the misplaced perception that they are money minting machines. However, what the public does not know is that running a betting firm is a very costly undertaking.
In addition to normal expenses such as salaries and rent licenses, gaming firms incur other costs such as fees for software needed for their operations and this comes at a princely amount.
As stated before licensees, like any other businesses, also pay income tax. Looking at all these costs it is evident that burdening gaming and lottery firms with additional taxes is a case of Caesar demanding more than his pound of flesh. Luckily, there are real life examples on what is likely to occur if operators are subjected to too many taxes.
French regulators recently reported that while there was an increase in online gaming, majority of operators are making losses due to heavy taxes they are subjected to. Players in the market have cautioned that such high taxes are not sustainable for the industry and the effect is that as companies shutdown users will go towards unregulated offshore sites.
In turn the state will lose revenues that it would have ordinarily made in the form of income tax and licensing fees. More Kenyans are using the internet to pay for goods and services, a trend that has not escaped providers who are all rolling out digital strategies in earnest.
Digital applications
Entertainment providers have introduced subscription-based services that have made it possible for savvy, mostly young, Kenyans to access movies and television programmes on their smartphones and tablets. Should local firms shutdown due to a tough operating environment, users will simply download apps or log on to unregulated offshore sites and continue to access gaming services.
There are several gaming companies based outside Kenya such as UK firm Ladbrokes that are still accessible in Kenya. Some of these foreign betting firms do not have to pay any taxes here. It is therefore important to take care not to kill Kenyan companies with excessive taxation to the benefit of foreign firms yet they pay taxes in their respective countries.
Regulators should come up with policies that will increase revenues but not at the expense of the mortality of local operators. After all, the rise of online betting firms have boosted the sports industry, created jobs and helped launch and grow sporting careers.
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