Kenya’s Digital Advertising Industry Faces Uncertainty Amid New Excise Duty on “Sin” Promotions

Kenya’s digital advertising industry is navigating turbulent waters following the implementation of a 15 per cent excise duty on online advertisements promoting alcohol, betting, gaming, lottery, and prize competitions. The levy, introduced by the Kenya Revenue Authority (KRA), is framed as a strategy to curb aggressive marketing of products linked to societal concerns such as addiction, irresponsible behaviour, and health risks.

Defending the policy, the government asserts that these “sin taxes” are designed to limit exposure to these products, particularly for vulnerable groups such as the youth and low-income earners. However, experts are warning that the ramifications for the advertising sector are likely to be profound.

“The first return and payment of excise duty for the manufactured excisable products and excisable services is due on or before January 20, 2025,” KRA noted in a recent advertisement.

Consumers and Industry Brace for Impact

The effects of the new tax are expected to ripple through to consumers, as companies might offset the increased cost of advertising by raising product and service prices. Such a move would make alcohol, entertainment, and gaming products more expensive, placing additional strain on household budgets.

Media houses, already grappling with declining revenues, are predicted to bear a heavy burden from the policy. Many Kenyan media outlets depend significantly on advertisements from these industries, and the excise duty is anticipated to further destabilize their financial footing.

In recent months, notable media organisations have laid off substantial numbers of employees due to revenue challenges, exacerbated by growing competition from alternative media.

Alcohol and Betting Industries Under Pressure

For alcohol brands, the new tax represents an additional hurdle. Already contending with significant taxation and regulatory scrutiny, many are likely to scale back their advertising budgets. This shift could disrupt their marketing strategies, which have increasingly relied on digital platforms, influencers, and social media channels.

Similarly, betting, gaming, and lottery companies, long burdened by stringent tax obligations, are bracing for higher operational costs.

During a public forum at the Kenyatta International Convention Centre (KICC) in November 2024, the Association of Gaming Operators of Kenya (AGOK) voiced concerns over the government’s plans to increase Value Added Tax (VAT) on stakes from 12.5 per cent to 15 per cent. AGOK argued that the sector is already overwhelmed by multiple taxes, raising operational costs and discouraging potential investors.

“This year we have recorded a notable number of registrations of new investors in the market while at the same time lost investors between 2023 and 2024, and they are not being replaced at the same rate,” AGOK highlighted in a statement.

They further expressed concerns about the rise of black-market gambling sites, which undermine legitimate operators and reduce government tax revenue. AGOK also pointed out the complexities of Kenya’s tax regime, which have led to legal disputes. Previously, the group had proposed replacing the 20 per cent tax on winnings with a 5 per cent levy on wallet withdrawals.

Growing Revenues, Mounting Challenges

Despite industry challenges, the Kenya Revenue Authority reported a 207.9 per cent growth in digital services tax revenue from betting companies during the last fiscal year, contributing Ksh5.328 billion to government revenue. While this demonstrates the potential of monetising digital advertising, it also amplifies pressures on businesses operating in an increasingly competitive landscape.

Kenya’s digital advertising market is projected to grow at an annual rate of 5.49 per cent between 2025 and 2028, potentially reaching Ksh15.4 billion. Internet advertising is forecasted to overtake television as the dominant medium by 2026. However, industry insiders caution that the 15 per cent excise duty on alcohol- and betting-related promotions could hinder this growth, compounding financial challenges for businesses.

Media and Consumer Fallout

Agness Kalekye, CEO of KBC, remarked last year that companies are likely to reduce advertising budgets in response to the new tax. This would result in diminished revenues for media houses, prompting cost-cutting measures such as layoffs.

Consumers, too, are expected to feel the impact as businesses pass on the added costs through higher product and service prices. Such price increases could make alcohol, entertainment, and gaming less affordable for the average Kenyan, straining household budgets and livelihoods.

According to the Communication Authority of Kenya (CAK), advertising expenditure in the media industry rose from Ksh16 billion to Ksh18 billion in the three months ending June 2024. This surge, driven primarily by advertisements from the property, building, and hospitality sectors, may not suffice to offset the anticipated downturn in revenues caused by the excise duty.

As the industry adapts to these changes, the excise duty represents a significant challenge, reshaping Kenya’s digital advertising landscape and testing the resilience of businesses across sectors.

By fLEXI tEAM