Ronald Karauri, the CEO of Kenyan online betting giant, Sportpesa, caused a mild uproar when he announced that the firm was withdrawing the full value of all its local sponsorships on account of the proposed taxes that have been placed on the gaming industry.
Captain Karauri has admittedly compared the taxes of the betting, gaming and lottery industry to those taxes imposed on alcohol or the cigarette sectors which have established negative side effects to society despite being legal.
However, his qualms with current government proposals are that they are unfair in as much as they solely burden betting companies unlike in the tobacco or alcohol industries where the ‘sin tax’ is passed on to the consumer.
Sportpesa’s withdrawal of sports sponsorships has been met with an immediate backlash as its actions smack of blackmail especially as the public perceives the company to be more comfortable with paying higher taxes in western jurisdictions, where it operates, as compared to local rates.
This raises issues of tax injustice in regards to why a local company would be more comfortable with following rules in foreign lands as opposed to its own homeland. Kenya’s tax rates are comparatively lower to those of other countries around the world where it willingly pays more.
What is even more worrying is that this is especially critical in a context where the massive advertisements and promotion of betting companies, particularly through its sponsorships, do not protect children from undue exposure to enticing messaging.
This is despite consistent news reports of suicides and addictive or compulsive disorders among young adults that are associated with betting. Combining this with emerging anecdotal evidence as to how online betting has reduced levels of productivity in mostly poor communities’ shows how problematic this activity is.
Dr. Mukhisa Kituyi of the United Nations Conference on Trade and Development (UNCTAD) is on record stating “…you are seeing the sports gambling in Kenya today but nobody tells the gambling firms not to accept money from poor gamblers. It is the poor who must be told that they will live with the consequences of dreaming that gambling is an investment…”
Sportpesa’s act of sponsorship withdrawals can therefore be interpreted as an act of industry intimidation. The company is taking advantage of the fact that there is no direct evidence attributing these societal problems to its activities.
Yet emerging studies, like the Implications of Sports Betting in Kenya by Amani Mwadime submitted to the Chandaria School of Business at the United States International University (USIU) in 2017 estimates that 2 million people in Nairobi alone participate in online betting.
By ignoring the ramifications of such exploratory data, the betting industry is therefore reading from the same old big corporate interference script to push scaremongering or confusing arguments like; the tax effect will lead to losses in jobs, incomes and the relocation of the company – all of which have already been done before.
Chapter 12 of the constitution on public finance management requires the creation of a tax system that promotes an equitable society. That means companies like Sportpesa are obligated to engage in good management practice by not holding the country at ransom as demonstrated in the sports industry.
Responsible corporate governance means that there is adherence to the law and in this regard, the regulations pertaining to taxation. It is only in this way that governments can derive the necessary financing to drive sustainable development.
Ultimately, whether or not Sportpesa continues to sponsor local teams, a fair outcome should ensure that betting companies pay their fare share of tax commensurate to the social costs of legal gambling in Kenya while remaining compliant within its dealings.
This blogpost was drafted by Leonard Wanyama, the acting coordinator of the East African Tax and Governance Network (EATGN). Follow on Twitter @lennwanyama