How Kenya’s gambling tax hike could affect its economy

In June 2017, Kenya’s president Uhuru Kenyatta signed into law a 35% tax on all gambling revenue from the country’s lotteries, betting operators, online sportsbooks, and similar.

This rate is now one of the highest in the world, and is in addition to a 30% corporate tax operators must also pay. The new rate is a major increase from the previous amounts paid by Kenyan betting operators (previously 7.5%), lotteries (5%), game operators (12%), and contests (15%).

While the move was immediately unpopular across many industries, half a year later the full effects of the hike are beginning to truly be felt.

Reasons and reactions

According to the Kenyan government, the purpose of the hike was to help deter Kenyan youth from becoming problem gamblers.

The prevalence of smartphones in the country has made gambling incredibly easy for anybody that possesses one; according to one poll of Sub-Saharan African nations, Kenya leads the group with 76% of youth respondents saying they have participated in betting or gambling before.

The goal of steering kids away from gambling, while admirable, is one that will take years if not decades to evaluate the success of. But so far, the ones most affected by the hike are the operators themselves, as well as the organizations they support.

http://images.performgroup.com/di/library/GOAL/69/99/2017-07- 24-rooney- everton_12klqwal7czba1nox64e35brve.jpg?t=1933572869SportPesa, the Nairobi-based betting platform perhaps best known outside Kenya as the shirt sponsor for Everton FC, has already taken measures to mitigate the negative effects of the tax hike. Many of these are proving to be harmful to the Kenyan sporting organizations that the company had invested significant amounts of money into.

As CEO Ronald Karauri claimed they would if the tax hike passed officially into law, SportPesa dropped all local sport partnerships to remain profitable, an estimated saving of 600 million Kenyan shillings (about $5.8 million USD).

“SportPesa is not exiting the country, but to survive that’s why we have to do drastic cuts on our expenses,” Karauri said.

The victims of the tax hike include top-tier football clubs AFC Leopards and Gor Mahia, who have said the sudden lack of funding from SportPesa could force them to withdraw from the 2018 CAF Confederations Cup and 2018 CAF Champions League, respectively.

Also feeling the hurt from ceased sponsorship will be the country’s domestic football and rugby union leagues, the Boxing Association of Kenya, the national rugby teams (which are scheduled to compete internationally in 2018), national champion rally driver Leonardo Varese, and the Football Kenya Federation.

“It’s a big blow to football development and sports in general as SportPesa are also sponsors in other fields,” FKF President Nick Mwendwa said. “Unfortunately, it is the position we find ourselves in. We, however, remain optimistic that a solution will be found in good time.”

The Kenyan Premier League has also been vocal in its disapproval of the government’s decision (see video above). So far though, it doesn’t seem like it will affect the betting firm’s high profile international sponsorships.

Even though SportPesa drew the ire of Everton FC supporters earlier this season for confusing tweets essentially mocking the club’s performance and front office decisions, there’s no sign that the firm (or club) has any plans to prematurely end the five-year deal that was signed last summer and is estimated to be in the top half of the most valuable Premiership shirt deals.

SportPesa is also the shirt sponsor for Championship side Hull City AFC, and holds other sponsorship deals with Arsenal and Southampton, none of which appear as if they will be affected by the recent news.

Possible benefits to the market

Other betting firms in Kenya are choosing to watch how things play out before taking any action.

As well as the Lotto Foundation, Betika, Kenya’s self-proclaimed top online SMS sports betting site, has not yet made any alterations to its operations due to the new tax rate or pulled any of its sport sponsorships.

Betika is the shirt sponsor of Kenyan Premier League side Sofapaka FC, while the Lotto Foundation supports fellow KPL club Posta Rangers, on top of major national running events such as the Baringo Half-Marathon.

An official from one of these firms anonymously commented: “It is too early for us to announce our next move. We prefer to weigh the situation first before we make our move, probably in the next few days.”

Even with the high tax increase, biting the bullet for a while might end up resulting in an ever-increasing share of the country’s gambling profits, as smaller operators find they must either merge with others or shut down operations altogether.

It’s hard to imagine that a concentration of the national client pool to the three-to-four largest gambling operators wouldn’t eventually cover the profits lost due to the tax increase, and also allow them to soon again participate in local sport sponsorships.

The new tax rate purportedly also has the intent of helping the organizations it seems like it might be hurting in the short run.

According to Henry Rotich, Kenya’s Treasury Cabinet Secretary, “the proceeds [from the tax increase] will be put in a newly created National Sports, Culture and Arts Fund, which will aim to help further develop the country in those areas”.

That means that in a somewhat cruel twist of fate, the same operators that were supporting local sport could soon be hurting it if they were to end their operations in Kenya – because of this fund, not ‘supporting’ the new rate could have a ripple effect that further cripples national and local sport organizations.

Should there be a mass exodus of Kenyan gambling operators, it could also harm the gamblers themselves, who would have to resort to patronizing offshore gambling sites or playing in unregulated and illegal venues.

What’s on the cards

With so much still up in the air in regards to how Kenyan betting firms (and their customers) will react, it’s impossible to predict the long-term effects of the new tax rate.

The closest recent parallel is the increased gross gaming revenue (GGR) taxes many European online poker operators experienced in the wake of the early 2000’s global poker boom.

In France, poker operators are taxed 2% off every cash game pot, which translates roughly to a GGR tax of 37-39%, almost identical to the new rate in Kenya.

Possibly not coincidentally, the French online poker market is now dominated by just a handful of operators—PokerStars.fr and Winamax make up close to 75% of profits from cash games in the country.

This shift of power to larger companies that can afford the high tax rate could be a preview of what’s to come in Kenya as firms try and weather the rising cost of doing business with mergers, splits, and takeovers.

SportPesa’s move to cut local marketing initiatives is essentially taking their ball and going home, but it’s also one of survival. Over the next few years we’ll see if other operators follow suit and if there will even be any games left to play in the end.


Source: SBC News

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