With mobile gaming on the rise in Kenya, African governments are looking at ways to tax winnings at source.

Gambling has taken place in Africa from as early as the 17th century and has always been particularly popular in the north-east of the continent. With South Africa’s strong history of horse racing and the origins of greyhound racing thought to be traced back to Egypt, gambling across the continent is not a new phenomenon.

Rapid expansion

The legality of online gaming varies across countries within the continent, but this has not stopped significant and rapid growth in the number of people participating in gambling in the area. In most African countries, gamers favor gaming over more traditional casino-based gambling, as evidenced by the figures published by PwC in their gambling outlook report for the continent as quoted by Casino Guardian:

“The expansion of the gambling market in some African countries could create new opportunities in the international gambling and sports betting sector. Still, there were some experts who raised red flag about the Africa’s gambling industry expansion, saying that it could bring much greater risk than benefits.”

Taxing winnings at source

The rapid growth of gambling in Africa has happened in an environment where levels of regulation vary, as do taxation methods, with rules varying from country to country. In Kenya, the issue is being tackled from a taxation perspective, with rules that were initially introduced in 2014 being reintroduced in the near future.

At the start of 2018, the Kenyan government introduced a 35% tax rate on gaming income, but it is now looking to build on that by introducing an amendment to the bill that will ensure that gambling companies tax winnings at source, with a 20% tax rate being applied before they are paid out.

This is the second time the government has attempted taxing winnings at source: they initially introduced a similar scheme in 2014, but it was overturned due to implementation issues. Whilst the new taxation rates would, in theory, raise revenue for the government and add a degree of transparency to gambling in the country, it is thought that the changes will simply encourage people to fail to declare their winnings and for gaming companies to move their corporate bases away from the country. However, systems similar to this have worked in other countries; in the US, for example, winnings are fully taxable and must be declared on gamers’ tax returns.

Mobile money – online betting

The rise in popularity of gaming is creating a new space for mobile money services to thrive. In countries where sports betting and other forms of gambling are growing rapidly, such as Nigeria, Kenya, Ghana, Senegal and Uganda, mobile money is also growing in popularity.

The growth in gambling is one of the unexpected collateral growth consequences of the rise in mobile money. The issue with this is that gambling is now being made available to young people across Africa. More than half of gamblers in Africa are aged under 35, an issue which could partially be explained by the low average age across the continent. With only one in six young people in employment in Africa, they are seeing online gaming as a potential source of income.

The issue with these forms of gaming is that participants often do not understand the risks associated with the odds which can lead to high risk playing. However, supporters of mobile-based betting in Africa claim that the rise of the format has been beneficial. They say it has increased employment opportunities and tax revenue and allowed for economic growth.

Take away

Growth in gambling across the African continent is leading to a variety of new challenges for governments, companies, and individuals. New legislation is attempting to regulate the market more effectively and increase revenue for the government through taxation. The main cause for concern is mobile money and mobile gaming?–?a format that governments have little control over at the moment.