- Kenya is looking seriously to expand its tax net across sectors
Betting companies in Kenya have been recently called out by the country’s tax authority for perpetrating a tax evasion scheme.
The Kenya Revenue Authority (KRA) recently revealed that as a result of tax evasion practices by betting companies, the amount being generated in the form of corporate income tax is alarmingly low.
Betting Companies in Kenya: Pads Costs of Sponsorship to Avoid Tax Evasion
According to the KRA chief manager of domestic taxes, Miriam Sila, most betting companies have been padding the costs of sponsorships and community projects to reduce their tax burden.
She further revealed that betting companies perpetrate this criminal act by claiming to support football clubs and other charities as part of their corporate social responsibility (CSR), when in fact they are just trying to avoid paying the required dues.
Most betting companies can withhold corporate income taxes with the cover of CSR since such funds are tax exempted.
She added that betting companies have been soliciting tax exemptions for their CSR from the Treasury Secretary, and once they’ve been granted the exemption, there is nothing the KRA can do about it.
The tax exemptions have added up to hundreds of millions and have been going on for six years.
Tax Exemptions Affect Withholding Tax
According to the KRA, tax exemptions also affect the amount generated in the form of withholding tax, as gaming operators enjoy tax breaks from withholding taxes on advertisements.
Betting companies were also flagged for padding advertising costs to reduce their tax burden.
In 2022, Betting Control and Licensing Board (BCLB) chief executive Peter Mbugi ordered all gaming operators to reveal the amount they spend on CSR and the activities they spend it on.
Mr. Mbugi revealed that most of the betting companies only claimed that their marketing spend is CSR, they didn’t spend the money.
Reasons Why Kenya Must Tackle Tax Evasion
It is important for the KRA to note that tax evasion undermines the principle of fairness and equity in the taxation system. When individuals or businesses evade taxes, it shifts the burden of paying for public goods and services onto honest taxpayers, leading to an unequal distribution of the tax burden.
Also, Tax evasion reduces the amount of revenue that the government can collect, leading to a shortfall in funding for public goods and services, such as healthcare, education, and infrastructure. This shortfall can result in higher taxes for honest taxpayers or cuts in essential services.
By tackling tax evasion, the government sends a strong signal that non-compliance will not be tolerated. This can deter others from evading taxes and promote greater compliance with tax laws.
Failure to address tax evasion can lead to reputational damage in the global community and economic sanctions, which can have serious consequences for a country’s economy and international standing.
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