Industry dismayed at proposed tax hike from 11 percent of GGR to between 20 and 50 percent of revenue
The Government of the Bahamas has alarmed online operators by proposing a tax hike of significant proportions. Operators who presently pay 11 percent of GGR or 25 percent of EBITDA (whichever is the greater) plus an additional 2 percent to worthy causes could find themselves paying somewhere between 20 percent to 50 percent of GGR under the revised tax regime.
The proposal comes from the ruling Free National Movement Party, a conservative-leaning party which rose to power in last year’s general elections. The proposed new tax structure will tax operators based on revenue on a rising scale in the 2018-2019 financial year with the lowest level based on the equivalent in revenue of Euro 17 million of 20 percent, rising through 25 percent on revenue between $20 and $40 million; 35 percent on $60 to $80 million; 40 per cent on $80 to $100 million and 50 percent on revenues of over $100 million.
It doesn’t end there; online punters will have to pay 5 percent of the amounts held in their online accounts, and a five percent transaction fee will be levied on retail lottery ticket sales.
The Bahamas Gambling Operators Association, which is understandably alarmed at the implications of such large tax increases, claims that the all-in costs of the tax hikes could total up to 68 percent of licensed operator GGR, with the potential of impacting over 2,700 locals employed in the gambling industry.
The Association has commissioned a report on the likely impact of the tax proposals which concludes that operators will on average have to pay an effective tax rate of 48 percent on over-the-counter lottery ticket sales, and a 43 percent rate on online gaming activity. The calculations are based on an average tax rate of 26 percent, and a transaction tax equivalent to 20 percent of GGR for OTC lottery sales, and 15 percent on online deposits.
The report notes that this would position Bahamas operators among the highest taxed in the global gambling industry, whilst the Association claims that the effect on the industry will be profound, pushing revenues down 30 percent to around $137 million annually and leading to a lower tax harvest and major company asset closures with the inevitable loss of jobs.
Such a scenario will tend to push punters to illegal and unlicensed operators, the Association believes.
Exacerbating the alarm in the industry is the fact that government drafted and released its tough proposals without properly consulting either the industry in general or the Association in particular, and apparently without the benefit of empirical data, analysis and expert opinion. This has raised the spectre of undetailed special interests possibly being involved.
There is also unhappiness in the apparent discrimination between gaming houses offering online gambling and lottery ticket sales, which appear to have been targeted. and tax rates for land-based full casinos which are available to tourists only and face more reasonable tax rates: Under $10 million in revenues the operator pays 25 percent in tax; $10 million to $16 million in revenue attracts tax at a flat $2.5 million plus 20 percent on revenue over $10 million.
On revenue between $16 million and $20 million the flat rate rises to $3.7 million, with a 10 percent additional tax on revenues over $16 million, whilst revenue of over $20 million is taxed at a flat $4.1 million with an additional 5 percent on revenue over $20 million.
Thus far industry pleas appear to have fallen on deaf ears as the budget goes into its second reading and debate on the proposals over the next fortnight before moving to a third reading.