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Sportpesa’s Sh95bn Tax Gamble As KRA Digs In

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Sportpesa’s Sh95bn Tax Gamble As KRA Digs In

Sportpesa’s Sh95bn Tax Gamble As KRA Digs In

Shareholders’ woes are set to deepen further as Kenya Revenue Authority moves in to demand Sh95 billion in tax arrears and penalties linked to Mpesa.

SportPesa betting firm linked to Bulgarian buccaneers, has been under the taxman’s scrutiny with a team carefully picked to look at the company’s ledgers, agreements, financial statements and invoices.

It has now emerged that the tax underpayments by Pevans East Africa Limited, SportPesa’s parent company, were a bad bet and KRA’s demand for Sh95 billion covering three years since 2017 might sink the company.

For a firm that had hooked young Kenyans into betting, its workings had been camouflaged by the billions of shillings it spent to promote its SportPesa brand, both locally and abroad, where it was a shirt sponsor for Everton, an English Premier League team, and for Formula 1.

Tax avoidance

But deep inside its financial reports, some KRA sources who have been studying them confide the company was the king of tax avoidance and cooking the books.

The initial demand for Sh15 billion, which led to the freezing of its license in Kenya, is now a shadow of what KRA wants Pevans to pay.

SportPesa was set up by Bulgarian operators in 2014 with the support of former Nairobi Mayor Dick Wathika, businessman Ronald Karauri and billionaire Paul Ndung’u — who was to provide initial capital.

Besides the tax woes which are going to face the company, a bitter shareholder fallout over allegations of transfer of $278 million (Sh29.1 billion) from the company’s coffers to overseas accounts and sale of shares in the firm’s holding company, has caused a huge internal rift that has led to the ouster of businessman Mr. Paul  Ndung’u.

Sportpesa’s Sh95bn Tax Gamble As KRA Digs In

Shifted base to Tanzania

An attempt to circumvent the Betting Control bureaucracy by registering a new firm, Milestone, also came a cropper recently after it sought to use the SportPesa platform and access to a database of more than 12 million customers. At the moment, SportPesa has shifted its base to Tanzania while its place has been taken by vernacular radio stations, which have entered the betting craze.

“We are watching them and like SportPesa, we shall be on their case too,” says a KRA official who was involved in auditing the SportPesa accounts.

It is intriguing how the company, for four straight years, managed to cook its figures even as it transacted in billions of shillings and with layers of companies.

For instance, Pevans is noted to have entered into a software provision agreement dated April 17, 2017 where it was to pay 2.4 per cent of the turnover to SPS SportSoft Ltd (UK), a service provider which owned the SportPesa gaming platform. But as it turned out, this offshore company, registered in the Isle of Man, was also linked to the shareholders and as such, the company was transferring payments from its left to its right pocket.

Sports sponsorship

Known for using colossal amounts of money to sponsor sports activities, the new audit found that some of the items listed by SportPesa as under marketing expenses were not allowable for tax purposes – and had not been approved by the Cabinet secretary in charge of Sports.

What that means is that the Sh7.8 billion that SportPesa used for both local and international sponsorships between 2016 and 2019 has been disallowed as an expense in its books.

Legal fees disparities

For instance, there are disparities on the Sh11 billion legal fees paid and the audit has now disallowed that expenditure arguing that Pevans had not shown that this was used “wholly and exclusively” in the production of income.

While the company was supposed to file returns to the Betting Control and Licensing Board and declare revenue, payouts and gross gaming revenue, an analysis of the withholding tax on winnings as per the data filed with the board shows lower figures than those reflected on the financial statements.

Thus, it now appears that some payouts were not subjected to taxation.

Courtesy. Daily Nation

Felicity Gitonga

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