The Kenya Revenue Authority (KRA) has been given permission to use agency notices to enforce the collection of winnings or betting tax, as they are income and subject to taxation.
In a victory for the taxman, High Court judge Alfred Mabeya ruled that winnings or betting tax are considered income and are subject to taxation at the rates specified in the Income Tax Act.
The decision was made in a case filed by Pevans East Africa, the previous owners of betting firm SportPesa.
The KRA demanded Sh1.6 billion from the betting company, but SportPesa argued that the taxman lacked the authority to use agency notices to collect winnings, which the Tax Appeals Tribunal upheld.
The court heard that the betting firm made a voluntary self-disclosure of Sh1.2 billion in betting tax for 2018 and proposed a settlement.
The Finance Act of 2018 mandated that taxpayers withhold 20% of gross winnings paid by punters and remit it to the KRA.
The KRA later assessed withholding tax on winnings from October 2018 to February 2019 and demanded Sh21.2 billion in total, including penalties and interest.
When the firm refused to pay, KRA notified the Betting Control and Licensing Board (BCLB) that the betting company was not tax compliant. The company paid Sh1.9 billion pending the outcome of the case.
The tribunal later ruled that the winnings did not include the punters’ stakes and dismissed the Sh5.8 billion demand.
KRA later demanded Sh1.66 billion in penalties and interest, but the tribunal ruled that the taxman could only do so by filing a case.
In its appeal, KRA claimed that the betting firm admitted to unpaid tax but failed to settle the amount, and that the tribunal erred in ruling that KRA lacked the authority to enforce tax collection under the Betting Act.
The betting company also stated that KRA should deduct the amount demanded from the Sh1.9 billion it had previously paid.
Justice Mabeya stated that the KRA is empowered to administer and enforce provisions of laws, including the Betting Act, despite the fact that the Betting Act does not include an enforcement mechanism.
He stated that betting tax is a withholding tax and that issuing agency notices to force collection of betting tax withholding tax is well within KRA’s powers.
According to the judge, the Sh1.9 billion paid in 2019 was not withholding tax, but rather to avoid non-renewal of its license.
“The court finds that the sum of Kshs1.9 billion was not paid as withholding tax but as security for any taxes that would have been found to be due,” the judge said.
He did, however, direct that the amount be deducted from the deposit to KRA and the balance be refunded in accordance with tax laws.
