Changes to the sports betting turnover tax and what it means for the industry

Kenya currently has the third largest gambling industry in Africa

Changes to the sports betting turnover tax and what it means for the industry

The gambling industry has been a very successful enterprise in Kenya for many years, with 57% of adults admitting to having engaged in gambling behaviour at least once in their life, and 10% of those saying that they gamble on a weekly basis.

Kenya currently has the third largest gambling industry in Africa, behind only South Africa and Nigeria, and the majority of that comes from sports betting. 83% of those who have gambled in Kenya have placed a bet on a football match, with football by far being the most named sport of choice amongst gamblers. The frequency and size of bets tends to increase during tournaments like the World Cup or African Cup of Nations, but the majority of regular betters are content to place wagers on weekly league matches. After football, the next most popular gambling option was the lottery, with 11% of gamblers citing this as their top choice.

The turnover tax introduction

At the beginning of 2019, Kenya’s sports betting market was generating $218 million a month, which might go some way to explaining why the government decided to make the controversial decision to increase its turnover tax. Under the new rules, betting companies would be required to take a 20% reduction off the total amount of winnings paid back to those who placed bets – and this included their original stake. These taxes would then be paid to the government. The idea was to try and reduce the hold that the government felt that gambling had over its citizens.

While initially it looked like the government’s hard-ball stance was having the desired effect of limiting the industry, it soon became clear that the controversial tax was doing more harm than good.

The turnover tax sparked a mass outrage amongst gamblers and betting operators alike, with many threatening to protest outside government buildings. Two of the country’s largest betting agents, SportPesa and Betin, responding by immediately withdrawing their operations from the country. SportPesa, which had held a market share of two-thirds of the Kenyan gambling market, was forced to let 400 employees go, and also withdrew from all local sports sponsorship deals. And Kenyan citizens began to find other, unregulated places to place their bets, thereby threatening to swell the coffers of the overseas betting industry.

The U-turn on turnover tax

In a massive U-turn, on July 1st 2020, President Uhuru Kenyatta signed the new Finance Bill into law, including a repeal of the 20% turnover tax, returning it to its pre-amendment figure of just 10%. This has been a move welcomed by all involved in the industry, and SportPesa have already started to prepare to resume operation within the country. However, on July 2nd, the government revealed that they were intending to review the tax again in six months’ time, with the intention of raising it again.

Gambling tax in the UK

Gambling in the UK is highly regulated and safe, making it a part of everyday life for many Britons.

The constantly changing amendments must be causing a headache for players and companies alike. SportPesa and Betin were already fighting a legal battle with the government of their interpretation of the tax laws even before the amount was raised. Perhaps the Kenyan government should look for guidance to other countries which have successfully regulated and taxed their gambling industries. One such example is the United Kingdom. The UK has one of the largest global gambling industries, with online casinos, online betting and national lotteries all paying 15% of their profits to the government.

The main difference between the UK and Kenya is where the tax comes from. In Kenya, the turnover tax takes the money from the plyer’s winnings. In the UK, all winnings are untaxed, with the tax instead coming from the company’s profits. This makes the players happy, because they can play secure in the knowledge that they will get to see every penny of their winnings, and this in turn make the online casino companies happy to pay their taxes, because they know they have a guaranteed income from satisfied players. A great example of a responsible casino that Kenya could take inspiration from is 888 Casino, a very popular and well-respected online casino in the UK.

The tax situation in the UK encourages players to go to online casinos, whereas in Kenya, the 20% turnover tax was causing betters to take their business elsewhere, threatening the stability of the companies and bringing about job losses.

Sports betting still reins supreme

Football betting is by far the most popular type of gambling in Kenya and is favoured my most over online casinos.

Although online casinos are legal in Kenya, they are still much overlooked by gamblers who continue to prefer sports betting over games. By contrast, in the UK they are the most popular form of online gambling. Online slots games, online bingo, and online skills games like poker and blackjack see thousands of players win money every week. The online casinos are attractive to gamblers because they trust them to be well-regulated and licenced by the government, and the casino brands work hard to ensure their games and sites are high quality. If a similar environment could be nurtured in Kenya, then the government might be able to reap more of a reward from the gambling sector and would not have to rely on raising high taxes from the players.

Summary

While the turnaround tax is at the lower rate of 10%, gamblers in Kenya will be able to enjoy increased returns on their bets. Hopefully the industry will see a surge in profits that will encourage the government to reconsider their position and not raise the tax back to 20% next year.

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