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Why recently imposed 35 per cent gaming tax is unfair

By Awuor Otieno | Published Wed, January 10th 2018 at 00:00, Updated January 9th 2018 at 23:41 GMT +3
[Photo: Courtesy]

The controversial gaming tax law has featured prominently in public conversation. This went a notch higher on December 28, 2017, after a court threw out a case lodged by one of the industry players laying the ground for immediate implementation of the new law, which will see all gaming companies pay 35 per cent tax on gross revenues.

Before the amendment was passed, under the Betting, Lotteries and Gaming Act of 1966, licensed betting companies were required to pay 7.5 per cent of their net operating revenue in taxes and lottery operators were required to pay 5 per cent on their operating revenue and a further mandate to contribute 25 per cent of their gross income to charitable activities or good causes. Other taxes such as corporation tax, VAT and withholding tax still apply.

It is interesting to note that sports betting firms have implied a similar 25 per cent contribution to charitable initiatives as part of their mandated obligations despite the law having been very clear that the obligation to contribute 25 per cent to good causes only lies with lotteries. This positioning is what has most likely caused the authors of the law to create a blanket 35 per cent tax burden on all players under the act.

By the very way the laws were structured in 1966, it appears the authors of the law at the time had a greater understanding on the structure and essence of the various propositions under the law. Betting and Lotteries had clear and different tax requirements for a reason.

In summary, a lottery is a game of chance. You buy a ticket based on a choice of numbers and wait for the draw to reveal the outcome. Betting on the other hand is a commitment or pledge made on a particular outcome where what you win is based on the amount you invested in.

Stalemate 

When one puts into perspective the differences envisioned under the law, it would be punitive to lump all the players into one basket when there are seemingly more creative ways to make the intended impact of the new law to be beneficial to the citizenry who ultimately fund the industry.

This would however require setting aside threats and actions that seem like attempts to blackmail the industry players. What is needed is a listening ear from the Parliament and Government, to bring all parties to the table and resolve the situation, which has already seen one lottery player suspend its operations citing untenable tax requirements.

Loud murmurs indicate any chances of fruitful discussions have hit a wall after one of the key industry players adopted a hardline stance seen as an attempt to blackmail the government into reducing the tax. As lobbying and discussions go on, for the sake of the other players in the industry “audi alteram partem” (hear the other side) would be the clarion call as the industry justifies why the tax should not be a blanket tax, and this should be done “bona fide” (in good faith), as something could still be salvaged from the good causes and charitable efforts across the country by some of the gaming companies. 

The difference

The licensing regime under which lotteries operate is completely separate from that of sports betting operations and fundamentally different in terms of the obligations of the licensees and the regulation of their respective activities.

The taxation regime under which lottery operates which is also materially different in structure from that under which sports betting operates and, the psychology of game play in lottery vs sports betting and the fundamental differences in relation to the potential dangers of compulsive/addictive player behaviour and the social consequences thereof.

On the other side of things, the Government has established a National Sports, Culture and Arts Fund where the now applicable taxes will go to for development work in those sectors. 

As it stands now, the law remains silent on the lotteries’ mandate to contribute 25 percent of the gross revenue of to charity. Which would imply that the law still stands and the applicable tax on lotteries including the 35 per cent tax now stands at 60 per cent of gross revenues. This is before consideration of winner prizes, operational costs and other costs. 

Contrary to recent newspaper articles and information in the media claiming a 70 per cent taxation in the UK lottery, this is ill-researched and misleading information.

In my opinion, it is not to say that tax should not be at 35 per cent. However, careful considerations should be made on the impact of this. It is clear that not all avenues to make this a win-win situation have been exhausted and further analysis of every sector of the industry (gambling, lotteries and sports betting) should be taxed fairly and based on the merits of the act as previously envisioned.

 

 Ms Otieno is a communications consultant

The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of Standardmedia.co.ke


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