The taxman is looking to collect a record Sh16 billion in excise taxes from betting, gaming, and lottery businesses in the next financial year as it tightens revenue leakages in the sector. The revised tax goal for the sector is Sh250 million more than the estimated revenue for the current fiscal year. In gambling, for example, the Bill aims to amend the Excise Duty Act to raise the tax on stake from 7.5% to 20%. KRA Tax on Stake
If realized, betting, gaming, and lotteries will be one of the tax income sources that are rising the fastest, having increased from just Sh 2.9 billion in the fiscal year 2020/21. This growth is a sign that the government is increasingly turning to this low-hanging tax source to meet its revenue needs.
These higher collections will be realized through proposed amendments to the Income Tax Act and the Excise Duty Act.
The Finance Bill 2023 proposes to amend the Income Tax Act to provide that definition of the word “winnings” includes the amount wagered implying that punters will be subject to withholding taxes on the gross amount paid as opposed to the present situation where they are only taxed on the amount won over and above the amount staked.
The Treasury’s ideas are meant to overcome the difficulties it has previously encountered when trying to define what constitutes “winnings” in the context of gambling, gaming, and lotteries.
The High Court determined that winnings refer to “payouts by the licensee but do not include amounts staked by the punter” in the matter of Commissioner of Domestic Taxes versus Pevans East Africa and six other parties in 2019. KRA Tax on Stake
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Tax experts now claim that the topic will inevitably encounter obstacles based on the principles of taxes, even as it is now written in the Finance Bill 2023.
There are two potential challenges in this. One, the High Court has already given a clear definition aligning with the ordinary understanding of winnings in its determination in the past. Two, seeking to tax a stake is equivalent to taxing an entrepreneur’s capital yet fundamentally, the Income Tax Act seeks to tax income and not capital
Robert Waruiru, Managing Partner at Ichiban Tax Advisory
It should be noted that there have been a number of court decisions at the Tax Appeals Tribunal and at the High Court, which have described ‘winnings’ as being net of the amount wagered or staked. The legislative amendments now appear to seek to amend this position through a change of law
Anjarwalla and Khanna
The Kenya Revenue Authority (KRA) has connected its systems with those of betting enterprises to ensure real-time tax collection, and the first phase of the integration onboarded 16 betting firms at the same time as the proposed modifications to the excise tax.
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