South Africa’s online gambling industry has come out swinging at National Treasury’s proposal to tax the sector even further, arguing its move is not only unconstitutional but would also push punters and companies deeper into the internet.
In a bid to clamp down on problem gambling, National Treasury says in a discussion paper released for public comment that it wants to increase the amount of tax online betting companies pay, regardless of whether they are legal or not.
National Treasury says the proposed tax aims to reduce the proliferation of online gambling activities. “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,” it says.
The discussion document, released earlier this week, proposes a new 20% national tax on gross gambling revenue – the amount bet minus winnings – for all online betting and interactive gambling operators.
Licensed bookmakers, which already pay value-added tax (VAT) and provincial gambling taxes totalling about 18% to 19% of their gross gaming revenue, would have to pay this new tax on top of existing charges. National Treasury estimates the extra tax would “translate into over R10 billion in additional revenue for national government”.
Casey Sprake, an economist at Anchor Capital, notes that South Africa’s gambling and digital “betting boom” could transform from an engine of growth into having a harmful effect on household finances.
South Africans are increasingly spending on online and other forms of gambling, with gross gambling revenue up 25.7% year-on-year as of 2023/24.
“Betting has dethroned casinos to become the dominant form of gambling, fuelled by the rise of digital platforms, mobile accessibility and sports sponsorships that blur the lines between entertainment and wagering,” Sprake says.
Ineffective measure
Garron Whitesman, founder of Whitesmans Attorneys, tells ITWeb that this proposed regulatory change would be counterproductive as it would result in some operations being uneconomically viable.
Sun International CEO Ulrik Bengtsson says National Treasury’s statement shows it does not understand the nature of online gambling, or how the industry works.
“[The extra tax] would decrease the offerings in a regulated market that are available to players and push those players to the black market. And we’ve seen it all over the world, where gambling taxes have gone up materially,” says Whitesman.
In its document, National Treasury concedes a badly designed tax could push gamblers toward illegal platforms, while legal operators might also move their businesses offshore, both of which would be detrimental from a regulatory and economic perspective.
The result, Whitesman says, would be a smaller tax base from which to collect revenue because smaller operators would have folded or moved outside the ambit of South Africa’s law.
Bengtsson concurs, noting that “significant evidence exists worldwide that increased gambling taxes will ultimately lead to a reduction, rather than an increase in tax revenue” as customers will inevitably shift to offshore platforms.
“The major consequence… will be that customers will receive less protection, which directly contradicts the proposed regulatory intent. Offshore operators do not offer the same level of consumer safety; they pay zero taxes and invest nothing in this country,” says Bengtsson.
Government is already struggling to stamp out illegal online gambling, with research identifying 2 084 illegal operators actively targeting South Africa, while authorities have prosecuted only 285 cases since 2018.
Whitesman adds there is a lot at stake for the legitimate industry, with some companies’ futures potentially hanging in the balance. He postulates that the issue could end up in court and drag out for an extended period of time.
Unconstitutional, unfair
The South African National Bookmakers’ Association (SABA) states this additional tax would apply to operators whether they are licensed in South Africa or not. This, it argues, isn’t possible as taxing unlawful and unregulated activities would be “in clear violation of constitutional principles of legality and fairness”.
SABA’s statement, issued by its CEO Sean Coleman, says rather than focusing on tax, National Treasury should be “refining and articulating a clear policy on interactive gambling and online betting”.
The legality of the online gambling industry is a matter of dispute as the National Gambling Board (NGB) and industry have diverging views of what is legal, based on differing interpretations of the 2004 National Gambling Act.
The NGB argues that no online gambling is allowed, while sports betting is. Several lawyers have told ITWeb this is incorrect: online gambling is allowed if the operator is licensed by one of the provinces.
“Taxes presuppose legality, and legality demands precision and certainty,” says Coleman. “The proper regulation of the online gaming industry depends squarely on this. Only once this has been achieved, should taxes follow.”
“This is one hell of a fight. National Treasury has picked the fight,” says Whitesman.
*The South African Responsible Gambling Foundation offers free, confidential counselling and treatment for people affected by problem gambling and their families. Contact details for Gamblers Anonymous are here.
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