Kenyans are closely following gambling activities. As of June 2023, they made a record Kshs 88.5 billion online, “enough to build two Thika Superhighways and still have a pocket change of Kshs 24.5 billion”, according to this LinkedIn article. 

The online gambling market in Kenya is thriving with many forms of casino activities. As displayed in this insight by Statista, gambling activities in Kenya are likely to reach €91.13m in 2024. Despite facing stricter regulations in recent years, the iGaming industry in Kenya benefits from increased security and legitimacy, as licensed operators comply with governmental requirements. 

This industry is experiencing robust growth, driven by customer preferences, technological advancements, regulatory measures, and favorable economic conditions.

The current taxation on customers and companies

The Kenyan betting industry has faced significant challenges recently, with the Betting Control and Licensing Board (BCLB) reporting an unsustainable drop in payouts. This downturn can be attributed to several factors, one of which is the current taxation system imposed on both customers and betting companies.

The Kenyan government implemented several taxes on the betting industry, including a tax on betting stakes, initially set at 7.5% and then increased to 12.5%. There’s also a withholding tax of 20% on winnings and a tax of 15% on betting firms’ gross gaming revenue. 

Betting firms are subject to a 30% corporate tax on profits. Despite the intent to regulate the industry, these heavy taxes can slow market growth and reduce tax revenue. To add up, the proposed Gambling Control Bill of 2023 suggests further financial burdens, including a 15% tax on gross gaming revenue and a monthly fee. 

Brazil’s Gambling Regulation

The new gambling law in Brazil covers various regulations regarding authorization, taxation, corporate policies, players’ rights, match fixing prevention, payments, inspection fees, and gambling advertising rules. As stated by Andreas Bardun, founder of KTO-group, “This milestone reflects a well-executed regulatory framework that effectively addresses key concerns within the industry.”, meaning we can expect this regulation to improve casino experiences and bring greater investments to the country.

Under this taxation law that will come into effect in 2025, companies must obtain authorization from the Ministry of Finance to run fixed-odds betting operations and iGaming services. The law defines online games and outlines requirements for operators, including local ownership, technical standards, and corporate policies. Operators are subject to a 12% tax on gross gaming revenue, while bettors face a 15% tax on net prizes. Players’ rights include receiving clear information about financial risks and conditions for betting, and ambiguous advertising is prohibited.

Additionally, measures are in place to prevent match fixing, regulate payments, and charge operators inspection fees based on their revenue. The law also grants the Ministry of Finance authority to regulate gambling advertising, with companies encouraged to self-regulate. 

In contrast to the Brazilian gambling regulations, Kenya imposes heavy taxes on the gambling industry, including excise tax on betting stakes, withholding tax on winnings, and taxes on betting firms’ gross gaming revenue and profits. Since Brazilian regulation adds taxation only on gross gaming revenue for operators (12%), and on winnings above R$2.112 for bettors (15%), it is likely to result in better experience and outcomes on both operators and bettors’ side. Although lower taxes may not be as profitable, their satisfactory result in the long term makes the economy around gambling grow and bring a solid environment for iGaming.

Optimal Taxation to Benefit Everyone

Setting the right tax rates is not just about revenue generation but also about creating a competitive environment for legitimate gaming companies. In Brazil, setting optimal tax rates ensures a balance between channeling consumers towards licensed operators and maximizing tax revenues. A study by Copenhagen Economics suggests that tax rates between 15-20% of Gross Gaming Revenue (GGR) achieve the best results, maintaining high channelization rates while maximizing tax income.

Tax rates below 15% may slightly increase channelization but lead to significant revenue loss. In turn, rates exceeding 20% make operators less competitive, driving consumers to unlicensed platforms and reducing channelization, according to this insight by ENV Media.

While the Kenyan government respects the max taxation of 15%, betting gains are taxed on 20% according to the Revenue Authority. A taxation that exceeds satisfaction such as highlighted by the Copenhagen Economics study causes several problems, like incentivizing tax evasion. This could also lead to revenue losses and reduced competitiveness for operators. A balanced approach to taxation is needed to ensure compliance and mitigate socioeconomic impacts.

In Brazil, the current 12% tax on GGR for gaming companies strikes a balance, but high rollers may seek alternatives due to the 15% income tax on winnings. Operators also face additional taxes, potentially deterring some from entering the market. It’s a delicate balance that requires careful consideration of market dynamics, consumer behavior, and industry needs.

High taxes may even lead consumers to unlicensed platforms with better odds and bonuses. This reduces participation in legal gambling and limits the range of options available through licensed channels. The taxation may drive gamblers to platforms in other jurisdictions with more favorable tax rates. That’s why finding the right balance in taxation is crucial for maintaining channelization towards licensed operators, consumer protection, and tax revenues.