By STANLEY MAINA
When I began writing this article, the main concern was the directive issued by the Government of Kenya on July 1, 2019 to suspend licences of betting firms as it sought compliance of industry participants. As at October 1, 2019, two companies, Betin and SportPesa had announced their departure from the Kenyan market. This raises an interesting paradox of equity, equality and justice in the way the government has handled the participants in the industry. Is there a balance of the interests of the concerned parties namely civilians, government, punters and betting companies?
In the last decade a phenomenal transformation of the industry has taken place, witnessed by a shift from traditional gambling to online platforms. The contemporary betting involves websites and online casinos where velocity and volume of transactions has recorded exponential growth. This may be attributable to an increase in smartphone usage amongst the youth.
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A research on betting in Kenya found that the country has a high number of gambling youth in Sub-Saharan Africa (SSA), which the Interior Secretary, Fred Matiang’i stated was at 500,000. A 2017 GeoPoll study observed that gambling was becoming popular particularly among males due to their high affinity towards sports and technology, combined with the proliferation of local sports betting players and the convenience of the mobile phone as a tool for gambling.
The new model of betting involves registration and participation of the punters online and is more efficient to run compared to traditional casinos.
The Kenya Revenue Authority estimated that the sector was earning up to Sh 200 billion yearly but only Sh4 billion was remitted as taxes. The data from Kenya gambling regulator Betting Control and Licensing Board (BCLB), however, shows that gross gambling revenue for the 2016/2017 financial year was Sh 20billion ($200mn). Gross gambling is the amount of money that betting firms report after making payouts to punters. To place this in a different context, research by Reelforge Kenya shows that four of the top ten advertisers in Kenya are gambling firms with two of them occupying the top two spots.
First, there has been the creation of employment: over four thousand Kenyans are direct employees. Considering the ripple effect, these people create jobs in their estates and households. With the announcement of the closures of two betting firms that command 60percent of the market share, it has been reported that 2,500 households will be affected by the imminent job losses.
When it comes to the social impact of the betting industry, major betting houses invest in sports promotion and other social activities to encourage sporting amongst the youth. The donations made signify the role a company plays in society apart from revenue creation.
I take cognizance of the fact that the youth are majority player in the betting industry. When Betting Control and Licensing Board (BCLB) suspended M-Pesa Paybills of 25 firms, it was estimated that 12 million accounts were affected. This means that there are over 12 million punters in the market.
According to the Kenya National Bureau of Statistics 2018 data, 7 million Kenyans are unemployed and out of this 1.4 million have been desperately looking for work. This survey found that the highest proportion (40 percent) of the low-income gambling consumer is unemployed, and a third (29percent) are students.
It is the duty of government to regulate and act in the public’s interest. The betting craze in the country is affecting the youth. Nonetheless, the solution to a lifestyle externality lies in understanding why.
Why are the youth betting? Are we betting to get rich quickly, or are we betting to escape poverty?
The answer is that majority are desperate to win the jackpot and escape poverty. It is important for the government to understand that most people are betting because they lack an alternative livelihood. Unemployed people are more likely to gamble vis-a-vis working citizens. This is the reason why majority of betting accounts are owned by college students and jobless youth.
Globally, tax jurisdictions have used the Pigovian tax methods when taxing the betting industry. The nature of this taxes is to discourage the negative externalities associated thereof. The industry has benefited the government via corporation tax, withholding tax, betting tax and excise duty.
Corporate tax: Betting companies are subject to corporation tax at 30 percent on the profits, Withholding tax on winnings at a rate of 20 percent of the payout. Pay As You Earn: Firms that are employers of a sizeable workforce are obliged by Section 37 of Income Tax Act to remit taxes on behalf of their employees, Betting tax on the gross gaming revenue (GGR) of a bookmaker at the rate of 15 percent as provided by Section 29A of the Betting, Lotteries & Gaming Act, 1966. Gross gaming revenue means gross turnover less the amount paid out to the customers as winnings. The bookmaker remits 15percent of the GGR to KRA on the 20th of every month. Excise duty: Finance bill 2019 proposes to impose 10percent tax on betting stakes placed by punters. Tightening the rope on punters and firms who engage in betting via Pigovian taxes: withholding taxes, corporate taxes and excise taxes only generates government revenue. It would be prudent for the government to proceed in moderation because opting for stringent regulations will only result in negative outcomes.
Advisor at Andersen Tax, Kenya.
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