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Capital Gains On Gambling Winnings

Thursday, 01 July 2010   (0 Comments)
Posted by: Author: Lawrence Nachito
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Capital Gains On Gambling winnings

In his maiden budget speech,Finance Minister Pravin Gordhan highlighted that the exemption of tax on gambling winnings is going to be reviewed and that the Income Tax Act may be amended to include these winnings in gross income.This is an interesting point which raises a number of issues. 

Firstly,it would be worth our while to understand treasury’s thinking, bearing in mind that the gambling and gaming industry provide significant revenues by way of the various taxes levied on them,VAT, gambling taxes and corporate taxes.Apart from this contribution to government revenues, this industry provides enormous employment opportunities as well as downstream business benefits to connected offering various services.This is an industry that is sensitive to economic trends especially in respect of the cost of living demands of the general punters who have to spend a portion of their disposable income towards this activity.(Not to mention that this public has already made its contribution to the treasury in the form of VAT and income taxes!).  

Gambling, therefore, in some instances has become an avenue of giving hope to a public that is facing economic challenge.Those small winnings therefore balance the books even though the other side of the coin means that one could also be worse off financially in the pursuit of gambling gain.The point here is that there is already significant contribution to treasury by the gambling industry and to now aim at taxing the punters could result in negative results on the whole industry.One should not rule out the possibility of illegal betting operations sprouting up to sidestep these developments and the impact will definitely be felt by the industry.History has shown that careful considerations need to be applied before some enactments are done.The prohibition of liquor in the United States in the 1930s showed the intended ban caused the opposite of the intent.Some would therefore argue that it is better to ensure legitimacy,legality and control over the gambling industry and derive the tax revenues than to create situations that could stifle intended objectives.

The second point to note is how treasury intends to identify the winning punters and tracking the declarations of winnings for the taxes to be applied.It is one thing to enact such a tax provision but the cost benefit of putting up the infrastructure and the resources to monitor vis a vis the expected incomes is an area that needs careful consideration.Gambling activities are generally games of chance and it is possible that one could be a consistent partaker in such activities or,in some instances, people may try their luck in a random manner.What then would be method of taxation?Would it be at source when the winnings are collected?

This however, would raise the question of costs incurred to"create” those winnings! How would these be taken into account?Again, what about the losses incurred?Are these to be claimed as deductibles? My view is that   if these gambling losses are to be claimed,it would be at great expense to the treasury. These are issues that will need to be addressed before the process of amending the Income Tax Act can even be considered.

My parting shot is to ask why treasury would now seek to consider killing the joy and hope that gambling offers to the general and casual punter,at a possible huge cost to themselves and the gambling industry. 

Source: By Lawrence Nachito (TaxTALK)



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