Ayanda Sakhile Zulu | Intern | Free Market Foundation | mail me |
National Treasury’s draft proposal for a 20% national tax on the gross gambling revenue of all forms of online gambling, including online sports betting, which is legal, must be called what it is: a revenue grab.
This proposal violates constitutionalism, undermines democratic practice and punishes enterprise. All of this is dressed up as a measure to reduce social harm. It is, in effect, a revenue-driven gambling tax. This proposal comes amid a moral crusade against interactive gambling in South Africa.
Flawed policy logic
Many South Africans, particularly the socio-economically disadvantaged, spend their money on online operators to generate income. Notably, interactive gambling remains technically illegal because the Gambling Amendment Act of 2008 was never promulgated. Therefore, the proposal of a national tax constitutes an inversion of basic rule-of-law logic.
Instead of first considering whether a regulated interactive market is desirable, Treasury is quietly chasing easy revenue. This is another example of a revenue-driven gambling tax taking precedence over sound policy. However, far more serious issues with this proposal warrant inspection.
Under the National Gambling Act of 2004, gambling regulation in South Africa is primarily a provincial competence. Each of the nine provinces has its own gambling board that handles licensing, compliance and taxation. While the national government plays an oversight and coordination role, the provinces retain primary regulatory authority.
This centralisation of fiscal responsibility makes a national tax unconstitutional. It disregards clear jurisdictional boundaries and the legal limits placed on the national government.
Lack of consultation
Moreover, much like the flawed Tobacco Bill, this proposal has been introduced without preliminary discussions with industry players or other affected parties.
Sun International CEO Ulrik Bengtsson notes:
It is a great pity that Treasury did not consult with the industry or relevant regulators, as adding additional taxes to gambling will make our industry one of the highest taxed gambling industries in the world. This will be over and above the VAT charge that only South Africa applies to gambling.
Meaningful consultation is a core component of democratic practice. It ensures legitimacy, accountability and genuine participation by all stakeholders. By bypassing preliminary engagement, Treasury signals that it is not committed to authentic democratic practice. Instead, it appears focused on box-ticking to push forward its agenda.
Punitive tax rate
Arguably, the most concerning aspect of this proposal is its punitive tax rate of 20%. As the South African Bookmakers’ Association notes, this will implode the legal gambling market and trigger a surge in underground gambling.
Currently, online gambling taxes, which are paid to provincial boards, sit in the range of 6% to 9%. An additional tax of 20%, coupled with VAT and other levies, will inflate the effective tax rate for some legal operators to around 40%. This is an untenable situation that will destabilise the legal market as operators struggle to survive and find it difficult to pass on the costs to consumers.
As one can see, this proposal represents a naked revenue-driven gambling tax that threatens the very existence of the legal gambling market. This market is a vital revenue stream and a far safer alternative than the technically illegal, unregulated activity of interactive gambling.
Public and industry pushback
Time will tell how the public reacts, but industry players and stakeholders are already pushing back. This proposal, which does not explicitly ring-fence funds for mitigating social harm, should not see the light of day. The legal market must remain protected. Attention should instead focus on regulating interactive gambling responsibly.
While interactive gambling is a vice and overindulgence has placed it on the agenda, the conversation should be robust and consider all angles. It must resist moralising uniformity. Stories of lost money deserve as much attention as questions of individual agency and the socio-economic crisis driving interactive gambling in South Africa.
Treasury’s proposal, which is both dangerous and distracting, poses a serious legal, democratic and economic threat. Stakeholders must actively resist this revenue-driven gambling tax as discussions about interactive gambling regulation continue.
