There is doubt that a tax on online gambling operators will stop the scourge it has become
Not a day goes by without a report on the financial disaster brought on by illegal online gambling. Yet government is still dragging its feet to institute gambling legislation that includes online gambling.
It seems that instead of tightening legislation, government wants to share in the spoils and tax the industry that took about R1.5 trillion from desperate consumers.
National Treasury published a draft national online gambling tax discussion paper last week for public comments, saying the gambling industry has evolved over the years from traditional forms of gambling to the greater use of online gambling.
According to Treasuy, regulation did not keep up with the gambling developments over the years, creating regulatory gaps. However, it says that this does not prohibit the taxation of online or interactive gambling “to internalise the social costs related to gambling activities”.
To mitigate the social costs related to gambling, Treasury proposes a national tax of 20% on the gross gambling revenue of the online and interactive gambling industry.
ALSO READ: Will taxing the spoils of illegal online gambling put a stop to it?
Tax on illegal online gambling unconstitutional
However, not everyone agrees with Treasury. Garron Whitesman, founder of Whitesmans Attorneys and an expert in gambling law, says this proposal is “constitutionally unacceptable in fact and in law and totally flawed in its logic”.
“It fails to recognise the clear jurisdictional boundaries of and limits on the national government on the regulation and taxation of gambling and betting in South Africa… National Treasury’s actions raise serious constitutional concerns about fiscal centralisation.”
He says Treasury’s proposal is particularly concerning because it also proposes a punitive tax rate that is way out of kilter from any balanced approach to taxation of gambling activities.
“Imposing a national tax at this level will mean that operator licensees will be required to pay provincial betting tax, a national gambling tax, VAT at 15% on bets, corporate taxes, withholding taxes, employment taxes and more.
“We must also not forget the substantial BBBEE, upliftment and CSI contributions made by the industry. Business will become unsustainable for a meaningful part of the industry and lead to business closures and job losses not just for operators but many parties in the industry supply chain. The negative fallout will be massive.”
ALSO READ: Thousands of illegal gambling operators are targeting South Africans
Tax on online gambling will not deter problem gamblers
Whitesman also believes that Treasury’s claim that “the main objective of the reform would not be to raise further revenue, but rather to discourage problem and pathological gambling and their ill effect” is misleading.
“An additional tax at this rate will cause far more harm than good and hurt the highly regulated industry badly while the unlicensed industry will continue to grow as punters will no doubt flock there. The authorities will absolutely not be able to keep online gambling out of South Africa, just as authorities have not been able to do in other better-resourced jurisdictions.
“The unlicensed market will grow. We will be left with a smaller regulated industry, less customer choice and protection, and a tax base that has been eroded for the provinces.”
“There are far better ways to achieve Treasury’s alleged objective. The legal industry takes player harm reduction extremely seriously and is exceptionally worthy of extensive appropriate debate and regulation. Taxing the industry to death is absolutely not the answer here and will not achieve this.”
ALSO READ: Call for SRD grant and Nsfas recipients to be banned from gambling – Here’s how
Bookmakers not happy with tax in absence of industry regulation
Wayne Lurie, of the South African Responsible Online Gambling Association (SAROGA), points out that Treasury’s discussion paper dropped without warning.
“It reads, on the surface, like a neat solution.
“Take a sector that is growing fast, especially online betting, say that it creates social harm and announce a new 20% national tax on gross gambling revenue from online betting and interactive gambling on top of what provinces already collect.
“The headline number, more than R10 billion per year in new revenue, is designed to land well with a fiscally stressed public.”
However, Lurie says, scratch the surface and something else appears.
“Treasury wants South Africans to support a national online gambling tax at a moment when we still do not have a coherent, implemented national online gambling law.
“At the same time, the paper quietly proposes a central national tax in a space where the constitution deliberately put provinces at the centre and where provincial boards have carried the regulatory burden for more than two decades.”
ALSO READ: TFG says ‘almost entirely extractive’ online gambling is greater threat than Shein
Interactive gambling remains illegal
Interactive gambling remains unlawful in South Africa, he says. Parliament passed the 2008 Amendment Act to create a national framework for interactive gambling, but that Act was never promulgated.
“On the books today, online casinos are still prohibited. Only online betting, through provincially licensed bookmakers, is expressly accommodated, including on approved contingencies which include casino-style games.”
Lurie says Treasury’s own paper acknowledges that interactive gambling is illegal, then, in the next breath, proposes that the new national tax base will include revenue from it.
“The message to the illegal offshore market is effectively this: you may carry on offering products that the statute still treats as unlawful, provided that you calculate your gross gambling revenue carefully and pay a new national tax.”
Worse yet and absurdly, it implies that, while they do not recognise the legitimacy of online betting on contingency games, licensed bookmakers in the provinces should also pay this new tax on top of their provincial obligations.
“That is an inversion of basic rule of law logic. You do not fix 15 years of failure to implement interactive gambling legislation by quietly taxing the very conduct that parliament still defines as prohibited. You fix it by deciding, in public, whether South Africa wants a regulated interactive market at all and if so, on what terms.
ALSO READ: R1.5 trillion turnover: Online gambling snares South Africa’s youth
Three difficulties of draft gambling paper
Lurie also identifies three obvious difficulties: that the paper does not attempt to quantify the social cost of problem gambling in South Africa, there is no ring-fencing for the tax revenue at all and the operators will not be the only ones paying the tax, as they will just pass the extra expense on to the players.
He says a better path should start by resolving the status of interactive gambling in law and then design a fiscal framework on that foundation.
“Any national tax that is justified by reference to social harm should be partially earmarked for addressing it harm. A properly allocated national responsible gambling fund, with clear governance and reporting, would do far more for credibility than a generic promise that extra money in the pot helps everyone.
“Until we do that work, a national online gambling tax without a national online gambling law is not sound policy. It is a shortcut around the hard questions and it risks undermining a provincial system that, with all its imperfections, has held the line for almost 30 years.”
