New national tax in South Africa under fire

The National Treasury’s proposal to introduce an additional 20% tax on gross gambling revenue has come under fire, with critics arguing it will result in pushing more consumers towards unregulated offshore platforms. 

These platforms already account for a significant share of online betting activity in South Africa, with very little of the money generated being invested into the local economy. 

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.

The National Treasury’s proposed new tax, open for public comment until 27 February, aims to slow the rise of online gambling and ensure that some of the revenue generated is used to boost the state’s finances and economic growth. 

However, Free Market Foundation (FMF) policy officer Ayanda Zulu explained that such a tax could have negative consequences and exacerbate the extractive nature of online betting. 

“We do not support the proposal that the Treasury has put forward for increased taxation on online betting,” Zulu told 702. 

“The simple reason for that is this will be a 20% national tax on online gambling on top of existing provincial taxes. This creates a significant burden for the industry.” 

While the new tax is opposed by the FMF due to its expansion of the tax regime when government spending is highly inefficient, it is also because the tax could be difficult to administer. 

Zulu explained that many of the online betting sites operating in South Africa are based out of the country and have little physical presence locally. 

This makes it relatively difficult to tax their revenue and earnings, as much of that flows offshore and goes into the pockets of global investors. 

“The Treasury is saying in this proposal that it can tax these online gambling sites, many of which operate offshore, despite the lack of a mechanism or enforcement infrastructure to do so.” 

Illegal gambling boom 

One of the major concerns regarding the newly-proposed tax is the fact that it could end up with millions of South Africans betting illegally instead. 

South Africa has already seen the rise of illicit industries, particularly within the tobacco and alcohol sectors, that have significantly damaged legitimate businesses. 

These illicit industries are highly extractive, as they do not pay tax on the sale of their goods, and present a serious health risk. 

In the same vein, illegal gambling sites are, by nature, unregulated and do not offer any protection for the individuals gambling. 

“These online gambling sites are typically not regulated by South African authorities as they are based elsewhere,” Zulu explained. 

These online gambling sites take up a significant chunk of South Africa’s broader betting industry, with the FMF’s latest research indicating it could be as high as 62%. 

“This is why, before the National Treasury tries to tax these entities, it has to resolve their legal status in South Africa because there is no clarity around them,” Zulu said. 

“Their legal status needs to be resolved, and then, from that foundation, we can open up a discussion around taxes specifically for them.” 

Without this, legitimate businesses in the sector are at risk of being overburdened, as additional taxes are levied on them and not the illegal operators. 

This situation is likely to result in legitimate businesses shutting down and increasing the share of online gambling occurring with offshore entities and illegal operators. 

As a result, fewer South African gamblers would be protected by regulation and authorities, with little recourse should they be exploited. 

The South African Responsible Online Gambling Association (SAROGA) has called the National Treasury’s proposal unworkable. 

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

However, the National Treasury has argued that the tax 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.

“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,” National Treasury’s Christopher 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.