Ping-Pong Tax Games Continue in Kenya

Sunrise over the Masai Mara, with a pair of low-flying hot air balloons and a herd of wildebeest below in the typical red oat grass of the region. In Kenya during the annual Great Migration.

An ongoing will-they won’t-they has been the focus of Kenya’s gambling tax policy in recent years. On Monday, President Uhuru Kenyatta reportedly wrote a memo asking parliament to redraft the 2018 Finance Bill to reduce the country’s new uniform tax rate for gambling from 35% to 15%.

If you haven’t been following the story, this game of gambling ping pong comes after the President himself boosted rates that were previously as low as 5% for certain categories of gambling to a flat rate of 35% in June last year. The new rate only came into effect on January 1 of this year.

Lobbying to reduce the rate

Ever since the 35% tax rate was announced, members of the gaming sector have been campaigning for the government to review the move. Companies claim that the current rate is proving prohibitive to trade and is reducing their ability to offer competitive services in a growing market.

Two attempts to overturn the rate have been unsuccessful. Not surprisingly, the news that President Kenyatta has requested a re-draft of the country’s Finance Bill could be positive news for the country’s gambling industry.

The market in the country is expanding, yet companies have voiced their concerns that the increased rate is slowing growth and investment, so news of a lower blanket rate should be well received.

However, operators will still face a tax increase of 10% over the initial rate that was scrapped in January.

Varying rates suggested

Kenya’s treasury secretary initially proposed a 50% tax rate but, after talks with Kenyatta himself, a compromise was reached at 35%. The government said it was seeking to raise rates from the previous levels of as little as 5% to reduce the availability of gambling to young Kenyans. It is somewhat confusing and unclear why the President has had a change of heart.

Local sports bodies were the first to be hit by the hike in rates, with operators such as SportPesa canceling sponsorship deals as a result of the increased tax rate. Local sporting bodies were promised a share of the increased tax revenue that was generated; however, that has yet to materialize. The government has stated that it is waiting for parliament to approve the release of funds for this purpose.

Slowdown in growth followed

Across Africa, governing bodies have been increasing tax rates to capitalize on the rising popularity of gambling. The ICE Africa event in Johannesburg next month may provide operators with an opportunity to discuss how to continue growing in a market that is becoming increasingly taxed and tightly regulated.

The biggest market in the region is Nigeria, but gambling companies have also established bases in countries such as Tanzania and Kenya. These trends may change, depending on the outcome of the tax rate revisions.

Most investment comes from household names such as Ladbrokes and GVC Holdings, but many startups are looking to make their own way in the emerging market.

Right now, local companies still have an edge on external investors because their rich local knowledge enables them to cater to local customers’ needs as best as possible. With this new tax rate, who knows what doors may open?