The Kenya Revenue Authority (KRA) is demanding Sh8.59 billion from Safaricom #ticker:SCOM as withholding tax arrears due from two major betting firms — SportPesa and Betin Kenya — in a fresh row pitting the State agency against the betting industry.
The KRA manager for debt enforcement, Asha Salim, has written to Safaricom CEO Bob Collymore declaring the telcommunications firm a withholding tax collecting agent for SportPesa and Betin and demanding immediate payment of the sum.
KRA is demanding that Safaricom pays Sh5.29 billion withholding tax arrears due from Gamcode Limited, trading as Betin, and a further Sh3.29 billion due from Pevans East Africa, which trades as SportPesa.
The taxman has given Safaricom a Central Bank of Kenya account to immediately pay the money marked as withholding tax.
“I hereby declare you to be an agent of the above taxpayer (SportPesa) and require you to pay the sum of Sh3,296,532,012 being tax due by the said taxpayer,” directs Ms Salim in the demand notice for SportPesa tax.
Telcos such as Safaricom and Airtel usually offer a platform for customers of betting firms to deposit money in their electronic wallets for gambling and make withdrawals on winnings. The telcos in return earn transaction fees.
The row puts at risk Betin and SportPesa’s business licenses. Interior Secretary Fred Matiangi has already declared that all licenses of betting firms will be suspended in two weeks until they prove payment of all tax arrears. KRA has directed that Safaricom pays the demanded tax arrears in full from any amount that it may be holding on account of Sportpesa and Betin. It warns that the notice shall remain in force until the full figure is recovered in case of partial payment.
“Subsection 13 of section 42 provides that, if without reasonable cause you fail to comply with this notice, you shall be personally liable for the amounts specified herein,” Ms Salim’s notice concludes.
Both Betin and SportPesa have sued KRA, fighting off the alleged tax arrears. They want the court to declare the claim notices as “unlawful, in bad faith, illegal, null avoid” saying KRA is not handling their tax objections within the law.
KRA declined to comment on the matter, citing duty of confidentiality to taxpayers. “The KRA is bound by law not to reveal tax affairs of an individual or company. The information is treated as confidential under section 6(1) and (2) of the Tax Procedures Act and Section 125 of the Income Tax Act and the same are held as such,” KRA said in an emailed response.
It added that the Tax Procedures Act compels it to release information only for purposes of investigation to an authorised investigation entity.
Safaricom also declined to comment on the matter citing the ongoing court case.
SportPesa’s auditors, PricewaterhouseCoopers, had last year written to KRA explaining in a 17-page letter that the tax assessment was based on a wrong definition of winnings.
“Pevans avers that the definition of winnings under the Betting, Lotteries and Gaming Act, is vague and ambiguous and difficult for a taxpayer to construe what payments were in the nature of winnings,” PwC says in a letter to KRA objecting the alleged arrears.
It adds that KRA’s demand notice did not provide numbers used in computing the assessment or breakdown of winnings paid to resident and non-resident players, making it difficult for the betting firm to evaluate merits of the calculation.
According to the Finance Act 2018, winnings include “winnings of any kind and a reference to the amount or payment of winnings shall be construed accordingly.” Betting firms say KRA has lumped together customer stakes and winnings and calculated 20 percent withholding tax, instead of doing so on winnings alone. The High Court last week issued an injunction against KRA enforcing the order until the matter is heard.
Safaricom, an interested party in the matter, was allowed a chance to file and serve a replying affidavit on the case last week. Sportepsa and Betin were ordered to deposit a Sh250 million and Sh150 million bank guarantees respectively into KRA’s account.
SportPesa CEO Ronald Karauri had earlier last month written to Ms Salim seeking a meeting to explain the company’s tax compliance status.
In the letter, a copy also seen by the Business Daily, Mr Karauri says that in three years to end of 2018, it has paid Sh13.4 billion in taxes, adding that ‘the firm has complied with all direct and indirect tax requirements in its five years of existence.’
The taxation regime in the betting and gaming industry has been changing. Treasury Secretary Henry Rotich has disrupted the sector’s taxation system further by proposing to introduce 10 percent excise duty on the amount staked by gamblers.
This will give betting firms an additional headache of calibrating their systems to deduct 10 percent of staked sum and 20 per cent of the won amount and remitting to KRA.
“This direction is not viable in any given economy and will definitely result in a boom in underground illegal business. The government’s decision does not follow any best practice,” SportPesa told the Business Daily in an email.