The National Treasury’s proposal to slap a 20% tax on the online gambling industry to curb harmful gambling will only channel punters to illegal platforms and become an administrative nightmare for the SA Revenue Service (Sars).
These are the views of critics left unimpressed by a proposal the Treasury said would benefit the fiscus to the tune of R10bn a year.
The South African Responsible Online Gambling Association (Saroga) said the consultation paper issued by the National Treasury on Wednesday did not even attempt to quantify the social cost of problem gambling in South Africa, something the mooted tax seeks to solve.
Head of Saroga Wayne Lurie said the 20% figure put forward by the Treasury did not emerge from a careful costing exercise and lacked the necessary feasibility.
“There are also real administrative questions. How does Sars audit interactive gambling revenue from an operator whose servers, or payment rails, or wallet infrastructure might sit partly offshore?” Lurie asked.
“How is the national tax to be separated from the provincial base when single wallets service multiple products across multiple provinces?
“Treasury waves these questions away by pointing to provincial data flows. Anyone who has actually worked with those data flows and tried to reconcile them across boards knows it will not be that simple,” he said.
“International experience matters here. Where governments have set very high headline tax rates on gambling without a realistic view of enforcement, players have simply migrated to offshore sites. Kenya is the most commonly cited African example, but the pattern repeats elsewhere.”
If the Treasury has its way, it will demand that local suppliers of online betting register and provide Sars with similar information to that currently provided to the provincial gambling boards to collect provincial gambling tax revenue.
The department says in a consultation paper that the proposal is not fixated on revenue raising but on addressing the negative effects of online gambling on society.
“At the current levels of gross gambling revenue, the 20% tax on gambling would translate into more than R10bn in additional revenue for the national government. However, the main objective of the reform would not be to raise further revenue but rather to discourage problem and pathological gambling and their ill effects,” the consultation paper reads.
“Advances in technology have made online gambling more accessible, changing how people gamble and increasing the variety of gambling products available, which gamblers can now access from anywhere, at any time. It transcends provincial boundaries and cannot be realistically and fully administered at the provincial level.”
Sean Coleman, CEO of the South African Bookmakers Association (Saba), said the proposed rate would equate to more than double the existing tax burden currently borne by bookmakers, which would be unsustainable.
“Perhaps the most remarkable and potentially contentious aspect of the paper is its suggestion that the proposed online betting tax should be levied, not only on licensed operators (whether or not their operations are perceived to be in compliance with the prevailing laws), but also on persons who are unlawfully engaging in unlicensed betting or interactive gambling, in contravention of the existing law,” Coleman said.
“It is unthinkable that revenue generated by conduct which (correctly or incorrectly) is branded as being unlawful by the National Treasury should be the subject of taxes,” he said.
“Taxing unlawful and unregulated activities would be in clear violation of constitutional principles of legality and fairness, leaving aside the absence of a legal nexus with the pseudolicensed operator.”
According to estimates from asset management firm M&G Investments, most online bettors fall within the 26-35 age bracket, many earning R5,000-R15,000 a month, a demographic with an unemployment rate exceeding 40%.
The asset manager estimates that at current run rates the money lost by South Africans to online betting platforms will soon be more than R50bn a year, suggesting that some families are diverting funds away from basic household needs towards high-risk gambling in the hope of quick financial relief.
For the 12 months to March, industry data shows the total value of gambling turnover in all gambling modes amounted to R1.5-trillion, including recycled funds (money wagered, won back and wagered again).
South Africa’s bookmakers have opened industry talks to consider measures the sector can take to bar Sassa social grant recipients and National Student Financial Aid Scheme (NSFAS) recipients from channelling taxpayer assistance to the scourge of online betting.
South Africa is struggling to rein in an explosion in online betting, with millions of low-income, unemployed youths placing bets on digital platforms where the odds are overwhelmingly against them.
The scourge is amplified by the proliferation of illegal online gambling, which, according to a study commissioned by Saba, accounts for 62% of total online gambling activity.
The National Treasury’s consultation paper acknowledges that taxing online gambling might lead to 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,” it said.
“There are already concerns that the introduction of a tax or higher taxes could potentially shift punters from the legal to illegal industry, depending on the design of the proposed tax and possible reforms required to the existing regulatory framework to facilitate the implementation of the tax.”
Rise Mzansi has led the political charge against the gambling crisis, calling for deeper industry reforms and regulation.
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