Blow to betting firms, gamblers as KRA goes for more taxes

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The Kenya Revenue Authority (KRA) has received a go-ahead to collect more than Ksh2.7billion (US$26.7 million) worth of monthly taxes on withholding tax on winnings from Sportpesa.

This follows a ruling by Milimani Commercial Courts Chief Magistrate, Peter Gesora, allowing KRA to collect withholding taxes on winnings from betting games on the Sportpesa platform among others, that have been failing to withhold tax on winnings.

The landmark ruling delivered on Thursday, May 23, 2019 arose from a 2014 suit filed by a Mr. Benson Irungu against Sportpesa Ltd trading as Pevans East Africa.

READ:Why Kenya will not collect taxes from sports betting

The suit sought to stop Sportpesa from deducting and remitting taxes arising from Mr Irungu’s and any other person’s winnings.

In his ruling last Thursday, Chief Magistrate Gesora while dismissing Mr Irungu’s case noted that the nature of sports betting, winnings are unpredictable and a player cannot be certain the amount that he will win.

“That being the situation, it is not sound to argue that certain amounts should not be collected by withholding tax agents. Revenue collection is well regulated by statute, and by the fact that Sportpesa is a tax agent is a clear indicator that all those using its platform are obligated to pay tax on their winnings,” Gesora ruled.

The Chief Magistrate added that the KRA Commissioner of Domestic Taxes is mandated to collect taxes from sport betting firms and remit the same to the Sports, Arts and Social Development Fund as set out in section 35 (1) (i) and (3) (h) of the Income Tax Act.

He further advised Mr Irungu to explore provisions for a refund if necessary as enshrined in the Tax Procedures Act.

In the rollercoaster suit and prior to the ruling on Thursday last week, Mr Irungu had on  May 22, 2014, obtained Court Orders restraining Sportpesa from making any withholding tax deductions on any person’s winnings from a bet or game of chance conducted by the firm.

Aggrieved by the order stopping Sportpesa from deducting withholding tax on winnings from betting, KRA which had not been party to the case sought to be enjoined as an interested party while seeking to set aside the earlier orders.

On March 29, 2019, KRA’s Legal counsel successfully obtained an order from Court setting aside orders obtained Mr Irungu’s on May 22, 2019 and issued by Senior Resident Magistrate D.M. Kivuti sitting at the Milimani Commercial Courts.

The orders had temporarily stopped the operations of crucial Income Tax Act sections (Sections 2, 10, 34 and 35) effectively rendering KRA unable to collect taxes amounting to US$26.7 million) per month; earmarked for national development projects.

As per the budget, statement read last year by National Treasury Cabinet Secretary, Henry Rotich, taxes drawn from betting activities are earmarked to finance sports, art, cultural developments and the rollout of the Universal Health programmes.

READ:As Kenya reins in betting companies, UK’s CellCast mourns

READ ALSO:Banning gambling in Africa: the consequences of sports betting on the continent

 

Martin Mwita is a business reporter based in Kenya. He covers equities, capital markets, trade and the East African Cooperation markets.

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