fter the government’s decision to effect a new tax law requiring all betting, lottery and gaming companies to pay an increased tax of 35 per cent on gross earnings, up from 15 per cent, online betting firm SportPesa carried out the decision of cancelling all existing financial agreements with clubs and federations on Tuesday.
SportPesa released an official statement following the measure, in which the operator defined the new tax law as "punitive, harmful to business, and also in contravention of Article 201 of the Constitution, which demands the public finance system to promote an equitable society where the tax burden shall be shared fairly."
SportPesa, through parent company Pevans East Africa, sued the Betting and Control Licensing Board, Interior and Finance Cabinet secretaries, Kenya Revenue Authority, the National Assembly, Speaker of the Senate, as well as the Attorney-General, in an attempt to block implementation of the new tax rate. A High Court ruling by Justice John Mativo last Thursday, however, threw out the case and endorsed the new tax laws.
The measure has dealt a heavy blow to Kenyan sports, considering SportPesa holds the largest market share in the betting industry, and has been the one of the most active companies in terms of doling out sponsorship money to teams, federations, as well as tournaments.
Sportpesa sponsored Gor Mahia and AFC Leopards football clubs to the tune of over USD 30 million and USD 23 million respectively per year, the Kenya Premier League and Football Kenya Federation and the Kenya Rugby Union at USD 50 million, USD 45 million and USD 60 million, respectively.
The company’s CEO Ronald Karauri stated that his company could no longer continue to sustain the sponsorships under the new tax law, as he delivered the news to a room full of sports administrators and journalists. He clarified that the company will not be withdrawing its operations in Kenya altogether, although he said a restructuring of its marketing budgets is inevitable.
“To end all speculation, we have effectively cancelled all sponsorships with Football Kenya Federation, Paul Put (Harambee Stars’ head coach), Andreas Spiers (assistant coach), Kenya Premier League, Kenya Rugby Union, Gor Mahia, AFC Leopards, Nakuru All Stars, Boxing Federation and the Super 8 grassroots tournament,” he said.
Mr Karauri said that contrary to media reports, no government official had reached out to him for consultation, and he issued a passionate appeal to government to rethink the matter.
“The Sports Fund is a good idea, but no country in the world has a government that has been able to support sports entirely on its own. We hope the government will sufficiently manage the funds and propel sports to the next level. I still believe there is hope, and as the chairman of the Association of Gaming Operators in Kenya, I request government to sit down with me so that we can come up with a more amicable solution,” he said.
The betting law took effect on January 1, although it had been signed into law by President Uhuru Kenyatta in June, last year. The initial bill had been drafted by then-Gem MP Jakoyo Midiwo in April 2016, and proposed that betting taxes be increased from 15 per cent to 50 per cent. The President, however, refused to assent it into law and directed that betting, lotteries and gaming be taxed at 35 per cent.
The purpose of the amendment of Section 59 B of Cap 469 was to “discourage Kenyans, especially the youth, from betting, lottery and gaming activities instead of productive economic engagement, a vice that is likely to degenerate into a social disaster”.
SportPesa has issued a notice to appeal against the High Court judgment, saying the new tax rate is in breach of Article 201 of the Constitution, which demands that the public finance system promotes an equitable society where the tax burden shall be shared fairly. Sponsorship of English Premier League team Everton is not affected by the cancellation.