The Kenya Revenue Authority (KRA) has lost its bid to collect billions of shillings from betting companies for the period between 2018 and 2019 after a High Court judge ruled that tax on winnings then did not involve the amount wagered.
KRA sought to tax both the amount wagered and the amount won as winnings but Judge David Majanja stated that their argument was ambiguous as the definition of winnings was not provided for in law during that period.
The taxman had sent notices to betting firms, including Betin, Betika and SportPesa, demanding billions of shillings in taxes due, and went ahead to freeze their bank accounts. The KRA also closed trading accounts with Safaricom’s M-Pesa, pushing firms like Betin to shut down operations.
Justice Majanja upheld the ruling of the tax appeals tribunal made in 2019 that barred KRA from collecting withholding tax that would have been deducted directly from the punters by the taxman.
“I therefore, find and hold that during the subject years of 2018 and 2019, the [KRA] commissioner could not collect the withholding tax that ought to have been deducted by the respondents from the punters and that all the commissioner could do was seek the same from the punters directly,” Justice Majanja said.
KRA began demanding the payment of Sh1.7 billion from Betika in 2019 claiming the gamblers were in arrears on account of the newly introduced 20% withholding tax on winnings.
But the betting firms opposed the demands arguing that the KRA misinterpreted the winnings to include the stake placed by a punter.
The tribunal in its ruling clarified that winnings, as stipulated in the Income Tax Act, are referred to as payouts by the betting firms but do not include amounts staked by the gambler.
Winnings from betting and gaming were not charged as income but Parliament changed the tax laws in July 2018 and defined winnings as the difference between payouts made and stakes placed in each month, for each player, payable to punters by bookmakers.
Justice Majanja also found that the law then did not state or set out what constitutes winnings and how to compute the winnings.
“In the case of such ambiguity, the interpretation and resolution must be in the taxpayer’s favor,” Majanja said.
The judge added that Parliament failed to define winnings to include both the wager and the profit.
Latest data from Safaricom shows that Kenyans spent Sh169.1 billion in betting through the telco’s M-Pesa in the year to March, underlining the gambling craze among the Kenyan youth.
The disclosure also shows that the value of bets went up by 23.8% from Sh136 billion in 2021, against the government push to end gambling by imposing higher taxes on the betting firms and punters.
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