Major battle over new national tax for South Africa

South Africa’s proposed new national tax on gambling revenue has met stiff opposition from industry participants, who warned it will just push individuals to use offshore and illegal providers. 

Some other concerns include how it will be implemented, with gambling companies already paying tax to provincial authorities. A new national tax may significantly increase their compliance costs and regulatory burden. 

This pushback has come after the National Treasury released a proposal in late November to introduce a 20% tax on gross gambling revenue in South Africa. 

The Treasury explained that the tax aims to discourage pathological gambling and its ill effects on society and the economy. 

Gambling participation had 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 online 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 legal industry has said that the tax will exacerbate this issue by pushing South Africans to use offshore alternatives, which are not regulated locally, and potentially engage in illegal gambling. 

“Without any doubt, the empirical evidence from around the world shows that in countries that have overregulated and heavily taxed gambling industries, the illegal industry booms,” expert in gambling law Garron Whitesman told SABC. 

“It is a meaningful problem when the regulatory regime is unbalanced, and this is the case in South Africa, where the industry is highly regulated already.” 

Whitesman explained that gambling companies in South Africa already have substantial compliance requirements and contribute significantly to the fiscus through taxes. 

“Provinces already regulate gambling on a daily basis, and they are the primary recipients of tax revenue from gambling,” he said. 

“The taxes being proposed are extortionate and are completely out of kilter with anything that is reasonable given the circumstances.” 

National Treasury explains the tax

The National Treasury believes the tax is a way to prohibit pathological gambling that is proving to be very destructive in South Africa. 

It has been clear that the aim of the tax is not to raise revenue for the government, but rather to discourage destructive behaviour in a similar manner to sin taxes on alcohol and tobacco. 

“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,” the National Treasury’s Christopher Axelson said. 

Axelson explained that the Treasury expects stiff opposition from the industry, despite the aim of the tax, as it is natural for companies not to want to be taxed. 

“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.  

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.

“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.”

He also pointed out that the tax may raise valuable revenue that the state can invest in healthcare, education, and social support systems. 

The Treasury estimates that the tax will raise around R10 billion in revenue a year for the state, if gambling remains at its current levels.

“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.”