Betting firm SportPesa has withdrawn its financial sponsorship from all sports activities in Kenya after being slapped with a 35 per cent tax on all gambling revenues.
The company’s CEO, Ronald Karauri however, said that the company will not be closing their operations in Kenya even after the cancellation of the sponsorships.
Some of the popular sports teams affected by the decision are soccer giants AFC Leopards and Gor Mahia.
The two clubs are sponsored by SportPesa and have been advised not to expect any more financial, help after next week.
The decision throws the two clubs into turmoil as uncertainty now sorrounds any international and local competitions they may be engaged in this year.
The Kenya Rugby Union (KRU) also acknowledged that they had informed of the cancellation of its partnership with the popular betting firm.
SportPesa had appealled the dismissal of the company’s suit by the High Court seeking to stop implementation of a 35 per cent tax on all gambling revenues.
SportPesa and Pambazuka national lottery had filed a suit with the High Court last Thursday seeking to stop the implementation of the tax hike.
The ruling delivered by High Court Judge had argued that the two firms did not present enough evidence to prove that the higher tax is punitive and that it was imposed as a deterrent to gambling.
The two betting firms sought to appeal the ruling stating that the higher tax rate is in breach of Article 201 of the Constitution, which demands the public finance system promotes an equitable society where the tax burden shall be shared fairly.
Other tax responsibilities imposed on betting firms in Kenya include 30 per cent corporate tax. These companies also allocate about 25 per cent of their sales to social causes like sports sponsorship as a legal requirement before taking care of winnings and other operating expenses.
SportPesa argued that the 35 per cent tax would impose a heavy tax burden on betting industry players amounting to 90 per cent.
“This is unfair, inequitable and discriminative, thus is illegal for contravening the Constitution. For lotteries, the total deductions come to more than 100 per cent because 50 per cent is paid out as prizes and not counting costs,” the firm added.
Prior to the 35 per cent tax imposition, lotteries were taxed at five per cent of their sales, betting firms – bookmakers – at 7.5 per cent, casino gambling at 12 per cent and competitions like raffles at 15 per cent besides other taxes and levies.
Betting firms insist that the tax increase will kill the fledgling industry and hurt supporting businesses especially telecoms and media companies, which benefit from daily advertisements from the firms.
Safaricom says mobile phone-based betting is driving revenue in its SMS business.
“The tax burden is more than double that applied to all other industries,” say the betting firms, arguing that other companies also have the benefit of increasing prices when taxes like VAT and excise duty are charged on their revenues.