Stung by higher tax, firm threatens to quit Kenya

SportPesa CEO Ronald Karauri at a recent event in Nairobi. [Photo: Jonah Onyango, Standard]


SportPesa CEO Ronald Karauri at a recent event in Nairobi. [Photo: Jonah Onyango, Standard]

In the last four years, the sector has been the fastest growing on taxes, growing 39 times from Sh120 million in 2014, to contribute Sh4.7 billion last year.

In less than two years, gaming firm SportPesa grew like a whirlwind to become Kenya’s most successful betting company, raking in billions of shillings in revenue.

The firm made history in July 2016 when it became the first Kenyan company to sponsor an English Premier League club with a three-year deal with Hull City.

Before the dust settled, it announced another deal with Southampton FC in a deal that sent more tongues wagging. At home, the firm had signed up several other deals with local teams as it threw more millions into sponsorships. As it grew, the Government was on the fence watching, and waiting to strike. With a double sword, the Government has struck the industry where it hurts most.

“Perhaps we invited this on ourselves by sponsoring teams. We should just have sponsored one game and kept our heads low,” Gerasim Nikolov, SportPesa Global Chief Executive Officer told journalists on Friday. From January next year, the industry will not just be the most taxed but it will be paying taxes on both its total revenues and then it will also be facing the taxman for another tax on its profits.

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This has upset the industry that was emerging as one of the most lucrative in the country. In the last four years, the sector has been the fastest growing on taxes, growing 39 times from Sh120 million in 2014, to contribute Sh4.7 billion last year.

With the new taxes, this number could more than triple to above Sh15 billion going by the new tax proposals.

SportPesa Kenya CEO Ronald Karauri says the new tax will see their gaming tax bill jump by 366 per cent given that a third of its gross revenues will now be taxed before expenses. After it subtracts its expenses, it will pay an additional 30 per cent on the net profit after deducting other expenses. The firm says its assessment shows that the industry will now just be working for the taxman.

“The gaming industry is still subject to other additional statutory taxes such as withholding tax and PAYE,” Mr Karauri, who also chairs the Association of Gaming Operators of Kenya (AGOK), said. Nikolov, who says the firm is being targeted, argues that the new tax will automatically throw them into the red.

SportPesa says it is now seeking licenses to expand to two other countries besides Tanzania and the United Kingdom as it prepares to exit the Kenyan market in January next year due to what it calls punitive taxes.

The firm, which is fighting the 35 per cent tax to be slapped on the industry on top of the 30 per cent corporate tax, says the Kenyan gaming industry will no longer be profitable.

“Show me any business that can survive a 35 per cent tax on its turnover today and still remain profitable. I will buy it today,” Nikolov said on Friday.

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He said the Government should just directly ask them to pack and go instead of hiding behind the mask of taxes that if implemented, will throw the industry in the red.

“We will just have a shell office here in Nairobi but it will be difficult to do business with these taxes,” he said. The firm said it has engaged the parliamentary committee in charge of taxes and also the Kenya Revenue Authority (KRA), but were shocked when the President went ahead to turn the tables and increase the betting tax to 35 per cent.

Initially, there was a proposal to have the tax at 50 per cent, but it was reviewed downwards before President Uhuru Kenyatta asked that the tax be reviewed upwards to 35 per cent. “Instead of hanging us, they have decided to shoot us. This tax is not founded on any basis other than killing the industry,” Nikolov added.

From January 2017, the gaming industry has been paying a 7.5 per cent betting tax on revenues in addition to the 30 per cent charged on all corporates. But with the new proposal, it means that the firms will be forced to pay more than 50 per cent of their revenues to the taxman.

Parliament argued that betting was becoming a social problem and to deal with it, they needed to slap heavy taxes on the industry to stop its proliferation. But the firm argues that all sin taxes are charged on the consumers to discourage them. Instead, the Government has spared consumers and decided to go after the companies.

The President’s action went against recommendations by the taxman, which seemed to be reading from a different script. “If the Bill is passed as it is, the immediate impact will be an increase in Exchequer revenues but this benefit may be short-lived depending on the elasticity of demand of the service,” KRA said in its submissions to Parliament.

“Our experience indicates that high tax rates even for commodities considered as socially undesirable ultimately lead to reduced demand. It may also help develop an underground economy and promote tax evasion,” KRA said. But the new Bill did not introduce a tax on winnings which means that those who win lotteries will continue taking home the full amount, leaving the burden of the high taxation to be carried by betting companies.

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At this rate, Kenya has overtaken its peers in the region on how much it is taxing the gaming industry in what has made other regional markets now more lucrative. Rwanda and Tanzania are currently charging 13 per cent while Ghana charges a 17.5 per cent gaming tax, according to the KRA statement.

One of the questions that gaming firms will not answer is how much they are making. But the growing influence and big sponsorships they have been signing up with local and international clubs set them up for higher taxation. Founded in Kenya in 2014, the firm currently sponsors Gor Mahia and AFC Leopards, Kenya’s biggest football teams. It has a sponsorship budget of about Sh900 million.

It also sponsors the Kenyan Premier League (KPL) and the Football Kenya Federation. The firm recently opened Tanzania operations and announced a Sh2.2 million sponsorship for the Serengeti Boys football team after it made entry in May.

The firm, which employs about 300 staff, says the tax is now a danger to sports sponsorships and puts jobs at risk.

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