Kenya has set the pace for the other East African countries to tame the betting and gambling craze, after imposing punitive tax measures in the 2017/18 budget.
In an unprecedented move to arrest the phenomenal growth of the gambling industry that has taken the region by storm, Kenya has increased tax on the industry to a flat rate of 50 per cent on the basis that its expansion is beginning to have negative social effects.
“Betting and gaming have become widespread in our society in an environment that is inadequately regulated. Its expansion is beginning to have negative social effects, in particular on the young and vulnerable members of our society,” said Cabinet Secretary for the National Treasury Henry Rotich.
He went on to raise taxes for betting, lottery, gaming and competition from 7.5 per cent, five per cent, 12 per cent and 15 per cent respectively to a uniform tax rate of 50 per cent for all categories.
Kenya is banking on the hefty gambling tax increase together with other “sin” tax measures including the increase of excise tax on alcoholic drinks to finance the $26 billion budget.
While the justification was that the tax increase will arrest the growth of the industry and raise resources to support development of sports through the newly-created National Sports, Culture and Arts Fund, industry players reckon the government is trying to kill the business and that other neighbouring countries are bound to follow suit.
“The government is out to kill legal businesses and the huge tax increase will only lead to the proliferation of backstreet gambling,” said Ronald Karauri, chairman of the Association of Gaming Operators of Kenya.
He added that the betting and gambling industry is already the most heavily taxed, contributing about $30 million to the exchequer in 2015.
“We are hoping that Parliament will shoot down the proposal not only to save investments and jobs but to also ensure more Kenyans do not resort to illegal gambling dens,” said Mr Karauri, also the CEO of SportPesa.
Rise in consumption
While Mr Rotich was categorical that gambling has become a societal problem, he also increased tax on alcoholic spirits owing to a tremendous rise in consumption particularly among the middle class.
Effectively, the government proposed to increase the tax on spirits from $1.6 per litre to $1.9 per litre, representing a 15 per cent increase.
According to Gordon Mutugi, corporate affairs manager at Kenya Wine Agencies, the increase will worsen the problem of counterfeits, which are estimated to command 40 per cent of the spirits market in Kenya.
“The increase will not affect the high-end consumers but the ordinary people, something that will force many to turn to illicit drinks,” he said.
But, according to Chris Lucas, Africa Spirits Ltd managing director, the introduction of a graduated excise management goods tax rate on stamps as opposed to the previous uniform cost provides a good foundation to curb the sale of counterfeit products.
While previously there has been a uniform cost of stamps irrespective of the cost of the product, now alcoholic beverage manufacturers will enjoy a graduated excise management goods tax rate ranging from Ksh0.50 to Ksh2.5 depending on the cost of the product.
“The new security features on the new stamps will make it easier for the Kenyan consumers to identify and choose safe alcoholic beverages,” he said.