New national tax on the cards for South Africa

The National Treasury has proposed a new national tax on online gambling revenue in South Africa, which is estimated to raise R10 billion for the state. 

This proposal comes amid a surge in online gambling in South Africa, driven by economic hardship in the country, with many looking for a quick win or alternative ways to earn money to pay their bills. 

Gambling participation has risen to 65.7% by the end of 2023, from 30.6% in 2017, with the National Lottery and online sports betting being the most popular forms.

The companies making significant money from this form of gambling, such as Betway and Hollywoodbets, have come under increasing criticism for the extractive nature of their businesses. 

Critics argue that most of the money flows to shareholders overseas, with the industry providing little to no benefit to the South African economy. 

However, the Treasury has been clear that the aim of the tax is not to raise revenue for the government, but rather to discourage pathological gambling and its ill effects. 

“The way we look at this is that it is closer to a sin tax. The mechanism is not quite the same. It won’t be taxed like alcohol or tobacco on a per-drink or per-cigarette basis, but we are going to tax the companies,” National Treasury’s Christopher Axelson told Newzroom Afrika. 

“We look at it like a sin tax. If there is a reduction in online gambling because of this tax, we would be happy with that, even if it reduces tax revenue.” 

Overall, the National Treasury estimates that it will generate significant revenue from this tax at around R10 billion a year. 

“This is a good thing. This is good for social expenditure, good for development, and it might mean that there is less pressure on other taxes in future,” Axelson said. 

“But our main aim here is to try to deter activities and reduce the amount of online gambling that is actually taking place in South Africa.” 

The revenue generated by the tax will go into the National Revenue Fund and will be split in the Budget as all other kinds of state revenue currently is. 

“We are not proposing any type of earmarking of this. Some previous proposals called to link the revenue from a gambling tax to efforts to promote responsible gambling. We will consider that, but at the moment, it will go into the general pot,” Axelson said. 

“The revenue may go to services such as healthcare, police, education, and other things. It will add to all of those parts of the budget.”

“Then, as I said, it can then put less pressure on other tax bases that we have. Maybe we won’t need to increase personal income taxes if we bring in a lot of revenue this way.” 

Challenges

South Africa’s plans to tax online gambling revenue follow similar measures from other countries, also looking to tackle a surge in the industry’s growth. 

Currently, the United Kingdom taxes “remote gaming” at 21% of gross profit and is consolidating remote levies, while New Zealand introduced a 12% offshore duty on online gambling profits. 

In South Africa, there are provincial taxes applied to online gambling operators already, with companies already submitting information to licensing authorities. 

The proposal from the Treasury is to simply go on top of that to limit any additional administrative burdens on these companies. 

The National Treasury’s plan has been sharply criticised by the South African Responsible Online Gambling Association (SAROGA), which called it unworkable. 

It argued that the tax will push gamblers offshore and significantly increase administrative burdens on local gambling boards and companies. 

The Treasury has said the proposal will actually ease the administrative burden in South Africa by requiring local online betting operators to share the same information they currently give to provincial gambling boards with the national government. 

Whether this eases or increases the administrative burden on companies is beside the point, considering the immense social and economic impacts online gambling has in South Africa, Axelson said. 

“We think the social cost is quite severe. There are many studies being conducted on problems of addiction, mental health issues, and financial distress,” Axelson said. 

“Part of this consultation is to get more evidence regarding the impact of online gambling in South Africa and how it can be addressed.” 

“But, of course, the industry does not want this tax. They are going to criticise it and try to prevent it from happening. With the consultation, we want to hear the inputs from everybody.” 

Axelson said the National Treasury will work closely with the industry and major players to ensure the tax can be easily implemented and not add excessively to their administrative burden.