Kenyan companies last year ran more than two dozen marketing campaigns offering millions in grand prizes in a bid to increase brand visibility, grow sales and reward loyal customers. What they had not bargained for in the raffle competitions was catching the attention of the taxman who saw the increased promotional sweepstakes by banks, telcos, retailers and fast-moving consumer goods producers as low-hanging fruits in revenue collection. Effective January 1 this year, lottery winners are required to surrender a fifth of their earnings to the Kenya Revenue Authority as stipulated by the Finance Act (2013). Kenya had been toying with the idea of imposing a 20 per cent withholding tax on windfall gains from betting and gaming activities since 2011. Gambling activities It was President Uhuru Kenyatta , as Finance minister in 2011, who proposed levying tax on winnings from gambling activities. The proposal was shot down after analysts said the tax move was ''ambiguous.'' Two years later, however, Treasury secretary Henry Rotich — who was the head of macroeconomics at the time Mr Kenyatta floated the idea of windfall tax — said the ambiguities had been removed and the tax could be finally charged. "I propose to amend the Income Tax Act so as to impose withholding tax on winnings from gaming and betting. This measure should make winners to equally contribute towards the exchequer," said Mr Rotich in his Budget speech delivered on June 13, 2013 . The proposal passed through Parliament and was assented to by President Kenyatta on October 24, 2013 , effectively classifying winnings — whether cash or in kind — from lotteries as income subject to taxation at the rate of 20 per cent. READ: Lottery winners hit as windfall tax comes into force Initially, promoters of lotteries and casinos were only required to pay 16 per cent duty while winners were untaxed. "The responsibility of collecting and remitting the tax is on the shoulders of the promoter. The winner shall be given a withholding tax certificate generated by the system under the iTax environment," KRA said in a statement to the Business Daily . Promotional campaigns that feature cash and material give-aways have emerged as a cheap and effective form of marketing. It has also emerged that some firms were recouping all their investments in such lotteries from the fees customers are charged to enter the competitions — especially those that used premium rate short codes. READ: New tax forces review of lottery prizes Promotions that must have attracted Times Tower's attention include Tetemesha na Safaricom in which the ultimate jackpot was Sh10 million and a pickup truck worth Sh2.5 million. Safaricom splurged a total of Sh500 million in prize money and airtime winnings on its lucky subscribers, whetting the tax agency's appetite which stood to collect Sh100 million in taxes. Airtel Kenya ran Vurumisha Mamili na Airtel in 2013 where two winners walked away with a grand prize of Sh5 million. The telco awarded lucky customers a total of Sh26 million in the two-month promotion. KRA stood to collect Sh5.2 million in windfall taxes from Airtel Kenya. Nation Media Group's Utahama Roundi Hii competition was held last year where Daily Nation readers won three apartments. Under the new law, the taxman could have earned Sh10.6 million from the promotion. PZ Cussons , the British firm that makes Imperial Leather soap, organised a promotional campaign dubbed Oga na Milli offering a grand prize of Sh1 million. But in what could have posed an enforcement challenge to KRA, PZ Cussons also gifted more than 200 lucky winners with a one-year supply of Imperial Leather soap. "A fair value will be determined through various ways such as finding out the price that a buyer would pay and a seller would accept for an item in an open and competitive market," said KRA. The Manchester -based company said it spent Sh50 million in prize money in the lottery promotion that closed on October 31, 2013 . Naivas Supermarkets ran the Christmas Kikwetu campaign where winners could have been taxed. Banks also took advantage of lottery campaigns to collect cheap deposits by promising customers that they stood to win if they opened an account and deposited cash in their accounts. Ultimate winner Togo -based lender Ecobank ran the Angukia Hao Na Ecobank promotion where one was required to open an account with Sh2,000 or more or deposit Sh2,000 and above into an existing account to enter the competition. For every deposit of Sh2,000 and above, a customer would earn one entry. The ultimate winner got a three-bedroom bungalow worth Sh5 million. Ecobank gave out Sh1.5 million in prize money to the first and second runners up, while others walked home with prizes such as fridges, microwaves, motorcycles and cameras. National Bank ran Dabolisha na National Bank where the mid-tier lender matched customer deposits up to Sh1 million weekly and a grand prize money of Sh3 million. Samsung ran Jaza Keja promotion last year with the jackpot being a Nissan double-cab pick-up fully loaded with Samsung products. Kenya Airways marked its 36th birthday last year by running a promotion where one lucky customer drove away a Range Rover Sport valued at about Sh9 million as the grand prize. EABL rolled out Tusker Watch and Win during the 2013 Tusker Project Fame 6 reality show with a jackpot of Sh2 million. US firm SC Johnson & Son ran the Kiwi Dreams competition and last week awarded each winner Sh50,000. Technically, the prizes should be taxed. firstname.lastname@example.org
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