Scrapping the Betting Tax and related matters

The Honorable Cassiel Ato Forson, the new Finance Minister, has made it abundantly clear that the Government in its first budget in 2025 will scrap the betting tax. There have been commentaries in the public domain as to the propriety of scrapping tax in the betting industry. The betting tax that the Honorable Minister has been referring to is the withholding tax on bet winnings which is just one of the tax types in the betting industry.

 

The withholding tax on bet winnings (winnings tax) is one of two tax types that is applicable exclusively to the betting industry. Although the winnings tax was in the original version of the Income Tax Act, 2015 (Act 896), it was never really implemented until it was abolished in 2017 by the Income Tax (Amendment) (No. 2) Act, 2017 (Act 956).  Its re-introduction in 2023 came with a lot of public uproar, especially among punters, since the tax is charged specifically on the winnings of punters. In 2023, the Income Tax (Amendment) Act, 2023 (Act 1094) among others introduced a 10% withholding tax on winnings from betting. It also introduced a 20% tax on the Gross Gaming Revenue (GGR) of betting operators. The GGR Tax is a revenue tax that is applied to the revenue of betting companies before any deductions. For many other businesses, the corporate income tax (CIT) of 25% is applicable after the company has made all the deductions that were wholly, exclusively and necessarily incurred for the generation of the income. For betting companies, the 20% GGR tax (adopted in place of CIT) is applied before deductions such as salaries, license fees and other operational costs. No controversies have arisen with respect to the GGR Tax. Betting companies have been paying the GGR Tax since the latter part of 2023.

 

The winnings tax on the other hand came with a lot of controversies as it led to agitation within the player body of the gaming industry. In fact, its introduction sent shivers down the spine of the betting companies as there was near player revolt which would have threatened the very existence of betting companies in Ghana. For the government of the day, if it had not noticed before, the player agitation made them realize that the betting industry was a force to reckon with. In 2023, it is estimated that about 4.5 million of the citizens of Ghana placed at least one bet. That is a number that any politician would be worried about, especially when the State had introduced a policy that had a concentrated cost on that group of citizens.

 

However, with the same speed as the players took to the streets and the airways to protest the introduction of the winnings tax, the protests died down and it appeared that it had become business as usual. For the betting companies, it appeared their fears of an industry meltdown did not materialize as there has been no significant reduction in betting behavior over the period. If the government was hoping to minimize betting behaviour with the introduction of the winnings tax, then it did not work. The evidence has shown that the demand for betting products is inelastic. The seeming increase in the price of betting products with the introduction of the withholding tax on winnings did not have any significant reduction in demand for betting products. Half-year data from the betting industry for 2024 showed an increase in the number of punters. With the increase in the number of punters, the withholding tax on winnings should have a positive effect on the revenue mobilization of the government. Since Ghana is in an IMF program, an increased revenue from the winnings tax would bode well for government revenue mobilization efforts.

 

Provisional figures from 2024 show that in the first full year of implementation of the withholding tax on winnings, Ghana Revenue Authority (GRA) collected about GHC 140 million from the winnings tax. Indeed, industry experts posit that the government would have been able to collect twice as much, if not more from the winnings tax if there had been an effective enforcement mechanism. It is therefore controversial to hear that the Government intends to forgo this revenue via complete removal.

 

As controversial as it is, it is a step in the right direction for the Government to scrap the withholding tax for three main reasons. GRA is unable to implement and monitor the payment of the tax, the Government has not generated significant revenue from the tax, and the introduction of the tax has not led to a reduction in betting behavior.

 

The implementation and enforcement of the withholding tax on winnings has become a technical nightmare for GRA. The most effective way to implement and enforce the withholding tax would have been to impose the tax on each transaction (transaction method). However, if you have over 600,000,000 in online transaction count interacting vertically, horizontally and cross-sectionally with betting platforms, it is nearly impossible to monitor the tax using the transaction method. GRA, therefore, resorted to implementing the tax at the point of withdrawal, where the player moves his funds from the betting wallet to a mobile money account (withdrawal method). Here, the tax is applied at the time that the player withdraws the winnings and after the stake that generated the winning has been deducted. For the uninitiated, the withdrawal method looks simple and very easy to monitor because by monitoring betting operator payables that sit with telcos and payment system aggregators, one would be able to determine player withdrawals. The withdrawal method has been fraught with a lot of difficulties too.  There is the question of when the game ends to determine when the tax is applicable. By keeping the winnings in the betting ecosystem, GRA will not be able to collect the tax if there is not a clear indication as to when the game ends. In addition, because of the offering of free bets and bonuses, betting operators can manipulate the value of the withholding tax. There are so many technical corners that it has become difficult for GRA to monitor and collect the withholding tax on winnings. GRA has made three attempts at introducing Practice Notes to guide the collection of the withholding tax on winnings and all three have failed to see the light of day due to the technical difficulties it has encountered. There are too many technical loopholes for betting companies to exploit as part of an avoidance scheme.

 

GRA will certainly relish a simpler tax type that they can easily enforce. In view of the technical complexities, some betting operators are cheating the system. They are not paying their fair share of the tax, and they are able to drive a lot more traffic to their betting sites to the disadvantage of other operators. Betting operators are therefore unhappy with the withholding tax. Once there is cheating, the Government is unable to collect what it would have otherwise collected legitimately. The players are unhappy that the Government is collecting some of their winnings as tax. So, at the end of the day, GRA cannot enforce the withholding tax fairly across the industry, the Government is not making enough money, players are unhappy that some of their winnings are being withheld, and betting companies are unhappy that there is cheating in the system. The conclusion, therefore, is that it is in the interest of the stakeholders for the withholding tax on winnings to be scrapped.

 

There have been legitimate concerns that scrapping the withholding tax on winnings would encourage more betting. However, as the data has shown, the introduction of the tax has not decreased betting behavior. On the contrary, the data shows that the transaction count almost doubled year-on-year. In 2023, the industry recorded a transaction count of about 380,000,000. In 2024, the transaction count increased to about 620,000,000. However, it is these same staggering numbers that have caused some people to call for an increase in the winnings tax as opposed to its removal. To such people, an increase in the tax would minimize betting behavior. As stated above, the demand for betting products is inelastic so there is no indication that an increase in the tax will have a significant effect on betting behavior. On the contrary, there are now a lot of betting alternatives. At present, the data shows that there is an increase in the number of online unregulated betting markets (black sites). Although there is a positive correlation between the introduction of the winnings tax and the number of black sites, there is not enough data to show causation. What is clear however is that black sites are on the increase. The regulators, Gaming Commission, National Communication Authority, and National Information Technology Agency all seem not to have an answer to the pace at which black sites are springing up and becoming available in the Ghana market.

 

Black sites are not good for several reasons. One, regulators in Ghana cannot monitor their activities. Two, being unregulated, black sites do not play by the rules, they do not pay taxes and do not pay any license fees. In addition, black sites increase the transaction cost of regulated betting companies in Ghana. Soon, regulated betting companies would be incentivized to cut corners in the market in order to compete with black sites. Regulated betting operators who are unable to compete with black sites may consider transitioning to the grey market or completely operate as black sites. All this will not augur well for the people of Ghana.

 

The Government has taken the right decision to scrap the withholding tax on winnings. The ‘betting tax’ must go. The Government should in consultation with the industry deploy a robust revenue assurance monitoring system to monitor the GGR Tax. The Government should work with regulators and operators to minimize the excesses of the industry. There should be a responsible gaming fund which should be funded by the industry to promote responsible gaming practices. At this point, the Government cannot ban the betting industry. It should tighten the regulatory field. The internet has made the betting industry ubiquitous. With a cheap and simple virtual private network (VPN), people can have access to betting markets anywhere around the world. Unable to eliminate the industry, relatively conservative societies have taken the approach to legitimize the betting industry and rather regulate it to ensure responsible behavior. In this direction, UAE issued has recently issued its first betting license.  Senegal has also issued licenses for sports betting. At present, the betting industry in Ghana is arguably second to South Africa in terms of market maturity. Nigeria has started to develop a betting industry and is looking to Ghana. Uganda and Ethiopia came to Ghana to learn best practices in betting regulation. We need to be prudent and pragmatic and strengthen the regulatory regime, so we are not overtaken by events.

 

By Dr. Kweku Ainuson, Senior Lecturer and Head of Department, Department of International Legal Studies. University of Ghana School of Law, Legon.