Negative consequences of 50 percent tax on gambling

During the budget speech, Treasury Cabinet Secretary Henry Rotich announced measures meant to make gambling punitive. To discourage gambling in the country, the government raised taxes in the sector (lottery, gambling and gaming) to 50 percent from the current 7.5 percent, a move also seen as a revenue source to help fund the sh2.6 trillion budget.

But this move has some negative consequences, beyond the possible revenues it seeks to tap. In an article in the Saturday Nation, economist David Ndii reckons that even a tax with so many merits can have unintended consequences.

He argues that gambling is an escapist leisure activity, like getting drunk or smoking a joint. It belongs, with alcohol and tobacco, to the category economists call “sin” taxes. They are called so because taxing them punitively is unlikely to be politically costly, as would be for instance taxing food.

In the speech, Rotich said

“This will help to tame gambling in the country which has gained popularity among the youth and a large population.” He added that gambling is beginning to have negative social effects, in particular on the young and vulnerable members of our society.

According to Ndii, one consequence is that rather than being a deterrent, the tax will be passed on the gamblers, who will in turn spend more money, some of which will be diverted from important things such as milk and eggs for the children.

In addition, another unintended (or perhaps intended) consequence is that such a punitive tax increases the incentive for the gambling companies to evade tax.

In a presentation to Parliament’s Labour and Social Welfare Committee regarding the Betting, Lotteries and Gaming (Amendment) Bills 2016 in February this year, KRA Commissioner General John Njiraini told MPs the fast-growing industry has helped expand the tax base.

He said eight of the 25 licensed betting companies had paid a total of Sh4.7 billion in the financial years 2014/2015 and 2015/2016.

He added that other taxes from the industry such as PAYE, VAT and income tax are projected to more than double by the end of the current financial year 2016/2017 from Sh1.2 billion last year to about Sh3.4 billion.

Moreover, another negative consequence is that some of the gambling operations will go underground. The consequences of this include more corruption opportunities for tax collectors, law enforcers and organised crime.

Football Kenya Federation (FKF) President Nick Mwendwa has said football will be the most affected if the 50 percent tax is implemented. He said that the federation will hold discussions with government to find an amicable solution.

Some of the betting companies that sponsor football clubs include SportPesa which funds the Kenya Premier League, Gor Mahia, AFC Leopards and Nakuru All Stars; Betika which sponsors Sofapaka; Betway sponsors Mathare United and Lotto sponsors Posta Rangers. These clubs could lose sponsors, negatively affecting their performance and the league.


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