The National Lotteries Control Board (NLCB) has objected to the proposed ten per cent tax on winnings as they are bound to lose an estimated $163 million on its net returns.
The NLCB instead has recommended several initiatives that are expected to rake in a possible tax-free surplus of over $370 million. One of the initiatives is to introduce seven days of lottery sales, where people can bet on Sundays as well.
Initially, when the state lottery system was implemented Sundays and religious public holidays were left untouched as a “mark of respect” to people of different faiths.
In a letter dated October 19 addressed to Imbert, titled: “Tax on Game Winnings—National Lotteries Control Board (NLCB),” the NLCB chairman, Marvin Johncilla, responded to Imbert’s request for additional information with respect to the implications of the proposed ten per cent tax on winnings at the NLCB.
The proposed ten per cent tax on winnings from National Lottery games was listed in the Budget 2018 to take effect this month. However, Imbert, in the Parliament on Friday, announced that it will instead be implemented early next year and will only apply to winnings over $1,000. The only reason given by Imbert was that it will take the NLCB, lottery vendors and agents some time to get accustomed to the regime of withholding taxes and remittance procedures.
He disclosed that Government has set a target of early January to proclaim this budget clause and to start the tax.
In the interim, Imbert said that NLCB, vendors and the Board of Inland Revenue will undergo training to get acclimatised with remittance of the tax.
'Tax on winnings should be implemented carefully'
However, the NLCB’s Johncilla, in his letter to the minister, reiterated that “any tax on all winnings should be implemented very carefully”.
“The Ministry of Finance’s expected net return of $370 million will be reduced by an estimated $163 million (equivalent to 44 per cent) to $207 million,” Johncilla said.
“Players will be driven to frequent the illegal gaming establishments, which we assessed as commanding four per cent ($744 million) share of the $19 billion gaming market,” he added.
The NLCB’s initial impact post-announcement of the ten per cent winning tax has been a 14 per cent drop in sales (week ending October 14, 2017), with an expected 44 per cent decline in the next three to six months.
He also made it clear that revenue will be delayed by the third quarter of the 2017/2018 financial year (April 2018) due to software changes in NLCB’s system.
Johncilla also disclosed that the taxes will have a catastrophic impact on the Instant Games (Scratch) portfolio, as prizes are pre-printed on games, which are already in the warehouse.
“Additionally, approval is needed urgently to address any further decline in sales, as any delay could have a crippling effect on the portfolio of games. The NLCB is open for any further discussions on its operations, as we are committed to the sustained growth of the gaming industry,” Johncilla said.
Johncilla recommended that the NLCB can implement business and marketing initiatives to meet the Government’s return target of $370 million through initiatives brought forward from financial year 2018/2019 to current financial year 2017/2018.
Those recommendations include: Seven days of lottery sales; expansion of the NLCB portfolio to include Video Lottery Terminals (VLTs); No tax on Instant tickets (scratch) as surplus is already remitted to the Sports and Culture Fund; Tax free—a surplus of estimated $373 million (with above initiatives); and a threshold tax on winnings above $5,000—a surplus of $346 million.
The NLCB supported its findings and recommendations to case studies in Jamaica and St Kitts, where they showed a decline in sales of 57 per cent and 38 per cent respectively, after the implementation of tax on winnings.
'It will fuel underground market, accelerate the capital flight of US$'
NLCB’s research also showed that if the Winning Tax should be applied on winnings from Instant Money Games (Scratch tickets), the tax will have a catastrophic impact on the portfolio; contribution to Sports and Culture Fund being reduced from $14 million to $4 million (-71 per cent); The return to wager players across all price points ($5, $10, $20 and $50) will be less than the cost of the tickets
$5 price point (14 per cent of sales) will be eliminated due to the unattractive face value of prizes offered due to volume of coinage prizes and impractical to apply a tax to merchandise prizes (vehicles, houses, furniture and vacations).
It is also feared that the NLCB’s Offline Agent programme will no longer be viable. The programme provides the opportunity for entrepreneurial individuals (primarily the elderly) to sell NLCB’s Instant Money Games. These people validate prizes $100 or less without the use of a lottery terminal and therefore are unable to track tax paid on all prizes.
They anticipated that without regulation and enforcement, players will progressively migrate from playing NLCB’s games to the illegal Play Whe operators and electronic roulette machine in bars, who both offer significantly higher tax-free payouts.
This, according to NLCB, has the potential to fuel the underground market and accelerate the capital flight of US dollars; risk of increased criminal activity and funding; risk of proceeds from illegal activity and money laundering entering the financial system, which can potentially lead to undesirable de-risking consequences.
Regulation and enforcement of the Illegal Play Whe operators could potentially return to the NLCB $37 million (50 per cent) of that market currently estimated at $74 million.
10 per cent tax unfair—Lee Sing
Former NLCB chairman Louis Lee Sing describes the move to tax NLCB’s winners as “unfair”.
“It is unfair to tax people who are legitimately participating in a state system,” Lee Sing said.
He added that Imbert, instead of implanting taxes should look at regulating the gaming industry, a proposal even he (Lee Sing) had made during his tenure at the NLCB.
“During my tenure we didn’t just talk to the then prime minister Patrick Manning…back then when he was making moves to shut down the gaming industry across the country, as a responsible Board we sought an audience with the Policy Formation Committee of the Cabinet and at that meeting we explained to the then PM the pitfalls of taking the decision that he proposed,” Lee Sing said.
“We spoke to the committee and explained to them in great details what was the challenge and at the end of those sessions the PM (Manning) noted that an act had to be redrafted. We were ahead of the game…we were always prepared to regulate gaming in the country and we presented not only a proposed act but a proposed cabinet note and a proposed policy to guide it and it remained in the committee of which Imbert was then a part of that committee. For three years nothing was done with it,” he added.
Lee Sing said that he wants to believe that Imbert has no intentions of regularizing the industry, “trying to tax the winnings of people who are participating legitimately in a game is not right and when right next door people operating whe whe machines (illegally), they are the ones should be taxed.”
VLTs illegal for NLCB to operate—Maharaj
Former acting deputy director of the NLCB Devant Maharaj said he was deeply concerned about the introduction of Sunday gaming as well as the introduction to VLTs which are essentially slot machine, and which are also illegal for the NLCB to operate. " There is an immediate need for a forensic audit of this operation and given the Government's callous chopping down of the casino industry, this move by NLCB is hypocritical at best. Incompetence cannot be taxed away."
NO COMMENT FROM IMBERT, JOHNCILLA, JOGEE
Contacted for comment yesterday, Johncilla told the Sunday Guardian that the term of the Board expired on November 26, and therefore he prefers not to comment on any matter concerning NLCB, “I cannot, I’m sorry.”
NLCB’s director, Michael Jogee, also declined comment.
Even Imbert chose to remain silent, “I would prefer not to discuss that, thank you,” he told the Sunday Guardian