By NEIL HARTNELL
Tribune Business Editor
A leading accounting firm has warned that casino gaming would be subject to “double taxation” if it was made ‘VAT-able’, undermining the industry’s competitiveness and ability to attract world-class tournaments.
KPMG, in its analysis of the 2014-2015 Budget, directly contradicted the advice of the visiting New Zealand consultants, Dr Don Brash and John Shewan, who had suggested all forms of gaming - casino and web shop - attract VAT.
And KPMG also noted that the 7.5 per cent Value-Added Tax (VAT) rate chosen by the Government was “particularly low” given comparable rates in other jurisdictions.
“In a recent survey of indirect tax rates undertaken by KPMG, only 10 countries have applied a rate of 7.5 per cent or below, with most countries implementing a rate of VAT above 10 per cent,” the accounting firm added.
“ The low rate should be welcome for the tourism industry with the removal of the hotel occupancy tax of 10 per cent.”
KPMG, though, argued against removing the VAT ‘exemption’ for gaming that was originally proposed by the Government. Given that the industry has its own specific tax structure already in place, this would prevent it being ‘double taxed’.
“Removing the VAT exemption proposed on some transactions, such as gambling and some financial transactions, could lead to double taxation, something that is not recommended by the OECD in their guidance on introducing VAT,” KPMG said.
“Additionally, applying VAT to certain financial and gaming transactions could make it very difficult for Bahamas-based casinos to compete in the international arena in which they operate.
“For example, it would be very unlikely that the Bahamas would be asked to host the world class poker tournament it recently hosted if VAT is applied to the stakes, and the additional tourism and marketing dollars generated by these events would be lost.”
While ‘exempting’ gaming from VAT would ensure that gamblers did not bear a ‘double tax’ burden, it would also mean that casinos such as Atlantis and Baha Mar would be unable to reclaim their input tax payments in proportion to gambling’s share of their overall business.
Major casinos have already told Tribune Business they are “vehemently opposed” to suggestions that Value-Added Tax (VAT) should be levied on players via the gross sum bet, fearing this could make them “less competitive” than North American rivals.
And, while rejecting the recommendation from the New Zealand VAT consultants in their May 6 report to the Government, casino operators told Tribune Business they wanted guest winnings to be ‘zero rated’ for VAT purposes.
The Government is proposing to grant ‘zero rated’ VAT status to export industries only, but the tourism and hotel industries have argued that they are, in effect, services industries and should receive the same treatment.
This would enable them, and hotel-based casinos, to both re-claim the VAT they pay on their inputs and avoid imposing the levy (now 7.5 per cent) on customers. This newspaper was told that the casinos do not want to be treated as VAT ‘exempt’, as originally proposed by the Government, because this would leave them unable to ‘net off’ their input tax payments.
“I’m just concerned that taxing customer winnings may make us less competitive with casinos in North America,” George Markantonis, Atlantis’s top executive, told Tribune Business.
Mr Markantonis said he was also “vehemently opposed” to VAT on casino revenues. “In the end that would penalise gaming customers, because we would have to pass it on. It could also hurt our competitiveness.”
Robert Sands, Baha Mar’s senior vice-president of government and external affairs, in an e-mailed response to Tribune Business, said: “Gaming tax is agreed under respective Heads of Agreements. It is paramount to preserve the gaming industry in the Bahamas, and that inputs are not exempt and that guest winnings are zero rated.”
The new Zealand consultant, Dr Don Brash and John Shewan, in their May 6 report to the Government, called on it to abandon plans to ‘exempt’ casino gambling and all other forms of gaming from VAT.
They argued that it was “difficult to justify” exempting gambling from VAT when the likes of food and essential services would be taxable, even if casinos were already subject to their own specific taxation.
Messrs Brash and Shewan added that levying VAT on gaming would also simplify reporting requirements for Atlantis, Baha Mar and Resorts World Bimini, as their different services would not be subject to different tax treatments.