South Africa’s licensed bookmakers are pushing back against the 20% gambling tax proposed by the National Treasury to curb the surge in betting, arguing it will cause an effective tax rate of up to 39% for the industry and drive businesses in the sector to the wall.
The industry has told the National Treasury that its proposed gambling tax will decimate jobs and lead to an explosion in illegal online platforms, which already account for much of the market.
The Treasury spooked bookmakers last year when it announced its intention to impose a 20% tax on gambling as one of several measures to rein in a surge in online betting in particular. The industry and other stakeholders, including members of the public, were given until Friday to comment on the proposals.
The South African Bookmakers Association (Saba) said in its submission, seen by Business Day, that the proposed tax, which the Treasury expects to rake in about R10bn, will cause an effective tax rate of nearly 40% for the industry and drive legitimate operators out of business.
“In South Africa, licensed bookmakers not only typically pay a provincial tax of 6.5% of gross profit in respect of online betting but are also liable for 15% VAT on their gross gambling revenue (GGR), which when adjusted for the recovery of vatable expenses translates into an effective combined rate of 18%-19%,” Saba’s submission reads.
“It is therefore manifest that the impact of VAT on the South African licensed betting industry has been completely overlooked or ignored in the analysis performed in support of the proposed tax.
“If a further national tax at a flat rate of 20% of GGR is to be levied on licensed bookmakers, over and above the provincial taxes and VAT, the effective tax rate will soar to 38%-39%. A rate of this nature comfortably outstrips the rates applicable in all but four (or more than 90%) of the international jurisdictions sampled.”
Asset manager M&G has said that at present run rates it estimates that the money lost by South Africans to online betting platforms will soon reach more than R50bn a year, suggesting that some families are diverting funds from basic household needs towards high-risk gambling in the hope of obtaining quick financial relief.
If a further national tax at a flat rate of 20% of GGR is to be levied on licensed bookmakers, over and above the provincial taxes and VAT, the effective tax rate will soar to 38%-39%. A rate of this nature comfortably outstrips the rates applicable in all but four (or more than 90%) of the international jurisdictions sampled.
— Saba
The Treasury’s consultation paper, released in November, acknowledges that taxing online gambling might lead to a proliferation of illegal platforms. “It should be kept in mind in the design of a tax instrument that an inappropriate tax regime could force legal gamblers and facilities to go underground and partake in illegal forms of gambling.
“This would hamper efforts to properly regulate the industry and may cause a larger externality than is currently associated with problem gambling,” the document states. Legal gambling facilities may also choose to take their business offshore and thereby reduce the contribution of the industry to the economy and fiscus.
Saba’s submission argues that apart from the danger of potentially imploding the licensed bookmaking sector, the proposed tax will have a spillover effect on the horse racing industry. “It should be noted that the online fixed odds bookmaking operations offered by horseracing operators make use of the revenue generated by these operations to contribute towards the funding of horseracing,” it said.
“If this lifeline is summarily removed, the blow to the sustainability of the horseracing value chain is likely to prove unmanageable, occasioning huge losses to the economy not only in the context of taxes on winning bets on horseracing (for bookmakers) and the taxes payable by the totalisator operator, but even more significantly on a socioeconomic level, by the sacrifice of thousands of job opportunities throughout the country.”
Rise Mzansi, which is part of the government of national unity, supported the proposed 20% tax on the gambling industry.
However, Wayne Lurie from Lurie Inc Attorneys said in his submission that the proposed national tax cannot be assessed in isolation and that licensed South African online gambling operators already bear a layered fiscal and compliance burden.
“Provincial gross gambling revenue levies currently stand at about 6.5% of GGR. The proposed national tax adds a further 20%, producing a combined GGR-level impost of 26.5% before corporate income tax, skills development levies or compliance costs are considered,” Lurie said.
“When corporate income tax at 27% is applied to net profit (already reduced by the GGR levies) and VAT obligations are factored into the cost structure, the effective total burden on a rand of gambling revenue processed through the licensed channel approaches 40%.”
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