Gam­bling with rev­enues

Gov­ern­ment de­lays fi­nal­i­sa­tion of in­ter­ac­tive li­cens­ing

Finweek English Edition - - Creating Wealth - RUAN JOOSTE ru­anj@fin­week.co.za

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

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