Gambling on a higher tax take

THERE was much interest in the recent announcement by Finance Minister Pravin Gordhan that he was lining up a new tax on South Africa’s gambling fraternity to put before parliament later this year.

Though the details are still relatively sketchy, according to the announcement in his recently delivered budget speech the idea is to levy a 15% withholding tax on punters' winnings of more than R25 000. This includes lottery wins as well as sports gambling, and probably local online casinos once licences are issued.

Finweek’s first response on hearing the proposed tax was “It won't fly”. A few calls to industry players indicated they were either unaware of the incoming tax or were not sure how it would be implemented.

For example, there’s been a huge clampdown on online casinos operating from Swaziland, where South African punters have been able to deposit cash on their credit cards and then have winnings refunded when they arrived back in SA.

Regulators began clamping down on these operators when they realised such winnings were falling outside SA’s tax net.
 
However, industry insiders say that was a pretext to the issuing of local online casino licences, which are expected to be announced over the next 12 months or so.

That also makes somewhat of a mockery of the government’s line that it is trying to tackle the moral and societal issues with regard to gambling.
 
As it stands, listed casino operator Gold Reef Resorts already pays a sizeable chunk of change when it comes to tax. It’s paid R188m and R180m over its past two financial years.

Phumelela Gaming & Leisure paid R150m in income tax last year, its financial statements show.

Daniel Kustelski, head of marketing at Voltbet.com, a subsidiary of JSE-listed Purple Capital, said similar legislation was proposed in France.

The end result was that punters simply moved their gambling activities into more tax-friendly offshore venues and the legislators actually lost more than they gained.

The legislation was rapidly repealed and it was back to business as usual.

In the United States the move is also to create a more tax-friendly environment. Online gambling and sports betting were illegal in a number of jurisdictions, but with the US Congress currently desperately seeking to find ways to bolster the country’s coffers it needed to try and find ways to keep punters and revenue-generating entities in the loop.

Closer to home, punters have already argued that managing the proposed process will be tough.

In the casino sector, gamblers will only have officially “won” something when they cash in their chips. If a punter has a win exceeding R25 000, then he could cash in R15 000 on day one and the rest on day two, so that the overall winnings would appear smaller than the threshold implied by Gordhan.

SA is now part of the global financial market. Many people who travel extensively to the US, Europe and Asia have taken advantage of those trips to diversify their assets offshore.

Retail customers are now familiar with a variety of payment wallets and tools, such as PayPal, through which to move money around offshore.

If that’s properly managed, they can stay under the radar of the South African Revenue Service.
 
For now, a gambling tax seems a nice idea but hard to execute in practice.

* This article was first published in Finweek
* To read more Finweek articles, click here.

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