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September 12, 2022

Kenya High Court holds that administration and enforcement of betting tax should be in accordance with the Tax Procedures Act

  • In this case, the Kenya Revenue Authority (KRA) declined a request to offset a security deposit against the betting tax and proceeded to issue a demand notice and agency notices.

  • The interplay of the various legislations governing taxes or levies that are collected by the KRA and subject to the Tax Procedures Act (TPA) has not been clear to taxpayers in certain instances, hence resulting in varied opinions.

  • The ruling addresses an important interplay between the various legislations that levy taxes or fees that are collected by KRA and the TPA which provides general administrative measures.

Executive summary

The Kenya High Court on 12 August 2022 declared that the provisions of the TPA were applicable in the administration and collection of betting taxes. This was pursuant to an appeal filed by KRA (the Appellant) against a local betting company (the Respondent).

The Respondent had paid a deposit of KES1.9 billion as security for taxes in a dispute related to withholding tax on winnings. Subsequently, in a separate dispute the Appellant conceded to betting taxes and requested the Appellant to offset the deposit against the betting tax that was due and payable to the KRA. The Appellant declined the request and proceeded to issue agency notices to enforce the collection of the betting tax.

The Respondent appealed to the Tax Appeals Tribunal (TAT), but the Appellant and the Respondent were both not satisfied with part of the final judgment. Both parties filed appeals at the High Court of Kenya.

Detailed discussion


The Respondent is a limited liability company incorporated in Kenya and licensed under the Betting, Lotteries and Gaming Act (the Betting Act). It made a voluntary disclosure of unpaid taxes of KES1.2 billion and proposed to settle in installments. However, it failed to honor the payment plan which prompted the KRA to issue a demand letter and agency notices.

The Respondent requested the KRA to offset the betting tax of KES1.2 billion (excluding penalties and interest) against the KES1.9 billion that it had paid as a security deposit. The KRA declined to offset the betting tax on the grounds that the security deposit paid related to tax withheld from punters and not from its own funds.

This prompted the Respondent to file Tax Appeal No. 402 of 2020 before the TAT. In its judgment, the TAT partly allowed the appeal and set aside the agency notices. However, it upheld the Appellant's decision to reject the request to offset the betting taxes against the security deposit. It held that the enforcement of the betting tax ought to have been guided by Section 68 of the Betting Act which provides for a civil suit.

Both the Appellant and the Respondent, dissatisfied with the ruling, filed separate appeals at the High Court. The two appeals were consolidated into one.

Appellant's position

According to the Appellant, Section 47 of the TPA which governs the procedure for refunds of overpaid taxes applies to money paid to the KRA as security for tax. Additionally, it contended that the collection of betting taxes should be exercised in accordance with the Betting Act and not the TPA.

The KRA asserted that it was empowered by the KRA Act to collect taxes on behalf of the Government and the issue in dispute was whether collection of taxes under the Betting Act should be governed by provisions of the TPA.

In determination of the legality of the agency notices, the Appellant asserted that the KRA Act empowered it to enforce collection of taxes under the Betting Act. That in enforcing the collection of taxes, Section 42 of the TPA provides for the issuance of agency notices.

Respondent's position

The Respondent challenged the judgment of the TAT on basis that the Tribunal had failed to find that the KES1.9 billion paid by the Respondent was not payment of tax withheld from punters but rather a payment from its personal funds on a without prejudice basis pending the determination of pending appeals.

The Respondent contended that the TAT erred in finding that the Respondent ought to have sought a refund under Section 47 of the TPA, yet the sum was not a tax payment made to the Appellant. In its appeal, it held that the TAT ought to have found that the Appellant should have utilized the KES1.9 billion to settle the betting tax liability.

Analysis and determination

The High Court held that that the said sum of KES1.9 billion paid to the Respondent was not paid as a withholding tax but as security for any taxes that would have been found to be due and payable.

It also found that the winnings or betting tax is on income and is subjected to taxation and the tax rates prescribed in the Income Tax Act (ITA). Betting tax is subject to the ITA, and its collection is by way of withholding tax. Its collection is thus subject to the provisions of the TPA.

In this regard, the issuance of agency notices to force collection of the betting tax/withholding tax was well within the powers of the Appellant.

It also concluded that since the said sum was paid as security for taxes, the provisions of the law regarding overpayment of taxes should apply.

The KRA was ordered to offset the KES1.6 billion being betting tax inclusive of penalties and interest from KES1.9 billion paid by the respondent and the balance to addressed in accordance with TPA.



For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi

Ernst & Young Société d'Avocats, Pan African Tax – Transfer Pricing Desk, Paris

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Ernst & Young LLP (United States), Pan African Tax Desk, New York