Gambling with revenues
Government delays finalisation of interactive licensing
THE SOUTH AFRICAN fiscus is losing potentially billions of rand in tax revenue and licensing fees due to delays in the finalisation of the legal framework for the licensing of online gambling in South Africa. Internet gambling is already readily available in SA from offshore-based operators but isn’t licensed or regulated in this country – and is very difficult to police given the nature of cyberspace.
Wendy Rosenberg, a director at Werksmans Attorneys who specialises in online gaming law, says whatever your opinion of online gambling and its potential social dangers, the reality is it’s easily accessible and in the current regulatory vacuum SA lacks protection, not to mention the loss of tax revenues.
The loss to revenue could be considerable. Gambling taxes collected by the Gauteng Gambling Board are the second largest contributor to that province’s income and the industry as a whole contributes billions annually to SA’s economy, with the industry creating almost 100 000 jobs over the past nine years. For example, countries like Antigua and Costa Rica legalised online gambling as an economic development strategy to attract jobs and investment.
SA’s National Treasury recently released the Interactive Gambling Tax Bill for public comment. The Bill provides for a tax on South African based online gambling sites at the rate of 6% of gross gambling revenue. “Government is losing tax revenue to foreign jurisdictions,” says Rosenberg. “It’s also losing out on revenue from licence fees from online gambling, as well as corporate taxes. We’re losing tax revenue to foreign jurisdictions and that’s the opportunity cost of the delay. Currently, only foreign online gambling sites pay taxes and licence fees wherever the operator is licensed locally.
“There’s strong interest by both local companies and offshore-based operators in applying for interactive gambling licences,” says Rosenberg. “But Government will first have to get the framework right. Why would offshore-based operators invest in SA if our licensing costs and tax rates are out of line with international counterparts? They can either invest in a tax haven or still target SA gamblers online.”
For example, Britain – which taxes gambling operations heavily – has struggled to attract online gambling operators due to the lower taxes imposed in other commonwealth jurisdictions, such as Gibraltar, which taxes online gambling operators at a rate of 1%.
“In addition, SA’s Treasury also needs to consider an even playing field for local operators. Currently, offshore operators can provide online gambling services – albeit unlicensed – whereas SA companies are prohibited from doing so,” Rosenberg says.
It’s estimated online gambling licences will only be issued next year because related parties have until 1 March 2009 to comment on the new Bill, which means the tax details are only likely to be finalised by mid-year. Several other regulations are also required before operators will be able to apply for an online gambling licence, a process that delays the process even further.
“Werksmans has represented several of the currently licensed bricks and mortar casinos, as well as various firms wishing to apply for online gambling licences,” says Rosenberg. “The delays have meant continuing uncertainty and procrastination in the finalisation of the interactive gambling licensing and regulatory framework. We still don’t know when we’ll be able to lodge applications for online gambling licences.
“Much regulation still has to be published. We don’t yet know how many licences will be issued, how to apply, the licensing fees or advertising restrictions. The Department of Trade & Industry is still involved in its internal processes in that regard,” she says. “There’s also likely to be a lot of regulatory demands attached to such licences, such as technology benchmarks, verification and payment infrastructure.”
The ethicality of online gambling has been debated worldwide and has been outlawed in countries such as the United States. However, SA’s Government has decided to proceed with it, passing enabling legislation three months ago. It’s assumed it considered all the social ills of gambling in a social-impact study, such as gambling’s compulsive nature and the potential corruption of minors.
However, it’s clear from the expected delays that it was passed without considering any of the commensurate advantages (and the desperate need for it), such as additional tax revenue, direct foreign investment and corporate social investment by operators.
The loss to revenue could be considerable. Wendy Rosenberg