KRA vows to challenge tax row on bet prizes

By Steve Umidha

Kenya Revenue Authority (KRA) Monday vowed to challenge the Judgment of the Tax Appeals Tribunal (TAT) delivered on 6th November 2019 in favour of the Betting firms.

The taxman last Wednesday suffered a blow after a tribunal ruled that a customer’s stake in a bet cannot be charged 20 per cent tax on winnings – subsequently giving a win to the likes of Sportpesa and BetIn who recently halted Kenyan operations.

The Tax Appeals Tribunal sitting in Nairobi ruled  that the 20 per cent tax should be charged on the positive difference between the payout made and the stakes placed in a given month.

Seven (7) Betting Firms filed Appeals before the TAT challenging KRA’s interpretation of the term “winnings” as was amended by the Finance Act 2018.

They also contested KRA’s enforcement mechanism after it enforced collection of 20 per cent Withholding tax on winnings by placing agency notices on the Betting firms’ accounts.

The Tribunal ruled in favour of the Betting Firms and found that the term “winnings” as defined at Section 2 of the Income Tax Act does not include stakes placed by a Punter and that if the legislation intended for winnings to include stakes-placed, it would have categorically stated so.

However, KRA disagrees with TAT’s decision for among other reasons, the fact that it departed from the decision by Justice Hatari Waweru’s in a Meru High Court Case in which the Learned Judge had found that there was no ambiguity in the interpretation of the term “winnings” as defined by the Income Tax Act.

In making the decision, the TAT found that Justice Hatari Waweru’s decision was inapplicable hence not binding on it because it had not delved into the definition of the term “winnings”.

Further, KRA is aggrieved by the Tribunal’s finding that it had no legal backing in demanding Withholding Tax from the Betting Firms and the manner in which it had enforced collection of the tax.

KRA has commenced the appeal process by filing a notice of appeal which it did on 8th November, 2019.

KRA has been demanding Sh61 billion from the betting firms for the period between May 2014 and March 2019.

SportPesa on September 27 announced it was halting operations due to a drastic rise in taxes on betting stakes and unresolved disputes with KRA.

Betin Kenya also ceased its operations, citing the heavy taxation as the main reason.

The Treasury last year reintroduced the 20 per cent tax on winnings, and amended the definition of winnings to include the stakes, sparking the dispute with the betting firms.

The earlier law provided for 20 per cent tax charged on net winnings, which is arrived at by deducting the amount staked by the punter. But this was revised to include gross winnings.

“The definition removed the provision for deduction of amounts staked. This amendment was effective July 1, 2018,” KRA said in its documents.

The betting firms are relying on a previous definition before the Finance Act 2018, and interpret winnings as “the positive difference between the payout made and the stakes placed in a given month, for each player.”