Betting Taxes In Ghana: Removing Or Retaining It
Introduction
In 2015, the government of Ghana introduced taxes on lottery winnings. These taxes targeted those who participated in the lottery or engaged in games of chance. However, they were removed from the statute book by the Income Tax (Amendment) (No. 2) Act, 2016 (Act 924). Later, in 2023, the government reintroduced taxes on betting through Act 1094.
The debate surrounding the reintroduction of betting taxes in Ghana is a significant one, especially with the upcoming budget reading that may determine the tax’s fate. Proponents of the tax might argue that it is necessary for revenue generation and regulation of the gambling industry, while opponents may view it as an unnecessary burden on businesses and consumers alike.
The justification for the tax can be examined from both political and technical perspectives. Politically, some may argue that the tax serves as a tool for government control over the gambling sector, possibly fueled by political agendas rather than genuine economic reasoning. On the other hand, those in favor of the tax might cite technical reasons such as the need for funding public services or addressing the social issues related to gambling addiction, making a case for its necessity in a regulated framework.
Ultimately, the outcome of this debate will hinge on the arguments presented, as well as the values and priorities of both lawmakers and the public. It raises important questions about the balance between regulation and economic freedom in a growing industry.
The argument for retaining the tax?
Several national discussions have taken place as to whether the tax should be removed or maintained. Most commentators who speak for retaining the tax are concerned about the possible impact on national tax revenue in the face of progressive taxation, particularly where the government is locked under an International Monetary Fund commitment.
Politically, some may argue that the tax serves as a tool for government control over the gambling sector, possibly fueled by political agendas rather than genuine economic reasoning.
The argument for removing the taxes
The following are a few challenges that may confront the continuous implementation of the tax.
1. No one taxes capital. Section 6(1) of Act 896 categorically states that the income of a person from an investment for a year of assessment comprises the gains and profits derived from conducting that investment for the year or a part of it. It is solely the profit or gains from investments made that are subject to tax. Unfortunately, section 6(2) stipulates that winnings from the lottery are taxable. It seems the drafter of the tax law concerning lottery winnings may have intended to refer to the profit from lotto staking, but is that truly the case? The author did not believe so. Now, if Kofi goes to the betting centre and stakes GHS 100, winning GHS 1,000, the law considers the GHS 1,000 as winnings. However, in reality, Kofi only realises a gain of GHS 900 from the GHS 1,000 won, as the initial GHS 100 invested does not constitute a gain. The tax will be applied on Ghs1,000 including the initial capital investment of Ghs100.
2. Time of assessment: A practical challenge associated with betting taxes is the timing of tax assessment. In some instances, a lottery player may have multiple rounds of stakes, and if luck is on their side, they may win some. They may lose some and win some. Unfortunately, tax law does not permit losses to be deducted from winnings, as the law deems the tax to be final. Meanwhile, all losses incurred are part of the staker’s capital invested within a specific time frame. No deductions are allowed against the final withholding payment. Refer to section 130(4) of Act 896. At a gaming centre, Kofi may place several rounds of bets. For example, Kofi may bet GHS1,000 and lose it all. He might need to borrow an additional GHS100 from a colleague at the betting venue to place another bet. Fortunately, he wins GHS1,100. He repays his friend the GHS100. Subsequently, he reinvested the remaining GHS1,000 and won GHS2,500. Therefore, the question arises: at which point will the tax apply, and on which amount?
3. Most developed countries do not tax betting. In most countries, the operators of games of chance are taxed, not the player or those who stake the lotto. Examples of countries which do not tax winning a game of chances include:
a. United Kingdom – No tax on player winnings, but operators pay a Gross Gaming Revenue (GGR) tax.
b. Germany – A tax on operator turnover but no direct tax on player winnings.
c. Italy – Operators pay a gambling tax.
d. Canada – No tax on casual gambling winnings, but professional gamblers may be taxed.
e. Australia – No tax on player winnings, but operators pay tax.
f. Ireland – Betting operators pay a turnover tax, but player winnings are tax-free.
4. Betting taxes could lead to more vices than expected. Generally, betting taxes are regarded as sin taxes, intended to correct certain societal vices. Unfortunately, betting is often associated with the youth, and these activities are predominantly addictive in nature. Once young people become addicted to betting, their demand becomes inelastic; regardless of the price, they will continue to seek these services. Consequently, increasing taxes on betting with the assumption that it will discourage consumption seems misguided. It is noteworthy that taxes on cigarettes imported into these countries are around 90%. However, these elevated taxes do not deter smokers. Therefore, it cannot be claimed that taxes on betting will dissuade youth demand in any significant way.
5. The compliance of the withholding agents. Tax compliance is a big challenge in most developing countries in Africa, and Ghana is no exception. The withholding agent of the betting tax is the lotto operators. The question is about practical compliance issues including remitting the tax collected to Ghana Revenue Authority. Additionally, most lottor operation are cash transaction. There are challenges in monitoring compliance with cash transactions.
6. Politically, the new government has strongly advocated for the removal of the tax, stating that it is a nuisance tax and regressive. As a result, the electorate expects that this tax should be abolished. This justification must align with fiscal policy and economic reasoning.
The verdict
Considering the practical challenges involved, it is crucial for readers to assess whether keeping this tax in the statute book is truly beneficial or if it would be more advantageous to eliminate it and focus on improving compliance measures at other tax points. The decision directly impacts our tax system’s efficiency and effectiveness. A sound economic and societal reasoning must inform whether there is a need to remove the tax or retain it.
The author believes that removing the tax may be justified for both fiscal reasons and societal correction, rather than simply keeping it in place. However, it must be emphasised that the government should prioritize educating the youth and creating more sustainable job opportunities, rather than relying on the tax as a solution.
