By NEIL HARTNELL
Tribune Business Editor
The Government and web shops will resolve their dispute over the industry’s “sliding scale” tax structure in the courts, it was revealed yesterday, despite making progress on the “patron tax”.
Wayne Munroe QC, who represents the Island Game and Paradise Games chains, told Tribune Business that both sides “identified one area where we have to go to court” when they met yesterday in a bid to narrow differences over the industry’s new taxation structure.
He identified this “area” as the “sliding scale” taxation structure imposed on web shop operators in the 2018-2019 budget, where they are to be taxed at a progressively higher rate the more “taxable revenue” they earn.
Mr Munroe’s account was backed by Carl Bethel QC, the attorney general, who told this newspaper that it was “unlikely” that the Government and web shops would be able to completely avoid the resumption of their legal battle.
He added that yesterday’s discussions had focused on trying to “limit” the areas in dispute while ensuring that the Government still received due tax revenues from the sector pending the Supreme Court’s verdict in the litigation.
Mr Munroe, though, revealed that his web shop clients believe no taxes are currently owed by any operator. He based this on a combination of the Government repealing the old tax structure in the budget, but then failing to properly replace it because it used incorrect language to describe the basis for the “sliding scale” taxation.
While the Government has subsequently corrected this by tabling amendments to the Gaming Act’s regulations in the House of Assembly and Senate, these have not been given effect through an appearance in the Government’s Gazette. Mr Munroe also pointed out that taxes cannot be made retroactive to cover the five months already missed.
Still, the well-known QC described yesterday’s meeting between Mr Bethel and his officials and the web shops’ legal representatives as “surprisingly more productive than we thought” when it came to addressing the industry’s concerns over the five percent “patron tax”.
This Stamp Duty levy, which will be applied to deposits on customer accounts and over-the-counter ticket sales, falls on patrons as opposed to the web shops. Mr Munroe said the Government had pledged to address industry concerns over “rounding”, which could result in web shops levying more than the due five percent rate thereby exposing them to patron lawsuits.
“Basically the Attorney General put the Government’s position on the table, which was to move forward with the legislation and rules presented in Parliament,” he added of the meeting.
“We put our position, and we identified one area where we will have to go to court. We have tentatively agreed a protocol for a way forward for us in having the matter determined by the court in the most efficient way.”
Mr Munroe confirmed this “area” was the “sliding scale” tax structure, where web shops pay on each portion of their revenue:
Up to $20 million in revenue, a rate of 20 per cent.
Between $20 million and $40 million, a rate of 25 per cent.
Between $40 million and $60 million, a rate of 30 per cent.
Between $60 million and $80 million, a rate of 35 per cent.
Between $80 million and $100 million, a rate of 40 per cent.
Over $100 million, a rate of 50 per cent.
Five out of seven web shop operators fell solely in the lowest 20 percent category, while for a sixth, only a small portion of its revenue fell into the 25 percent category. Only Island Luck, the market leader, whose revenues will attract all tax rates.
“The major issue with the correctness of the tax, and taxing on that basis, is something the court will have to determine,” Mr Munroe told Tribune Business of the “sliding scale” structure. “We haven’t made sufficient progress to say we agree it between ourselves. That’s the operator tax.”
Government missteps delayed the “sliding scale’s” implementation prior to the web shop industry launching its court challenge. The amendments which introduced it with May’s budget used “the wrong terminology” to describe what should be used as the basis for calculating the amount web shops must pay.
The definition originally employed could have been interpreted as meaning that the different sliding scale rates, from 20 percent up to 50 percent, should be applied to “all the money” that patrons pay.
It is supposed be based on that sum minus the winnings paid out by web shops, so the Government has now removed the term “revenue collected” from Regulation 57 and replaced it with “all taxable revenue”.
While amendments giving effect to these changes have now been tabled in both houses of Parliament, Mr Munroe yesterday argued that it “has not been effectively put in place” because they have yet to be Gazzetted.
And with the previous structure, which required web shops to pay the greater of 11 percent of taxable revenue or 25 percent of earnings before interest, taxation, depreciation and amortisation (EBITDA), having been repealed with the Budget, Mr Munroe argued that no taxes are currently due or owing by the sector.
“That’s our position. I think the Attorney General may dispute that, but that’s our position and that may or may not be something that goes to court,” he said.
Mr Bethel, confirming that the Government and web shops will probably resume their court battle at least in part, told Tribune Business: “It’s unlikely we’re going to avoid litigation entirely, but what we’re trying to do is limit the areas where we differ while, at the same time, ensuring there is revenue coming into the Government pending that.”
The dispute has already resulted in the Government missing its budgeted revenue projections from the gaming industry, with the loss pegged at between $8-$12m for the 2018-2019 fiscal year’s first quarter. This could now increase if a prolonged court battle results.
Mr Munroe, however, said yesterday’s meeting made “encouraging progress” in narrowing the two sides’ differences over the five percent “patron tax”. He added: “They now understand our position with regard to rounding.
“Their position is that they will address this in the primary legislation by an Act of Parliament. Our position was that you couldn’t address it in the rules as that might be inconsistent with the legislation, so they are going to it in the legislation itself.”
Mr Munroe said an “understanding” was also reached on the need for web shops to be given time to adjust, and re-certify, their gaming systems to account for the “patron tax”, and the procedures for doing so although the Government and industry differed over how long was required.
“They’re going to send us a summary,” he added of the two sides’ next step, “and once we get that we’ll be able to take instructions from our clients on certain items we have to get back to them on.”
And Mr Bethel told Tribune Business: “We’re seeking to arrive at a consensus, and are supposed to send a follow-up note, but we’re not there yet. We’ll see whether we arrive at an agreement in terms of the follow-up note and where we go.
“Right now, nothing is settled or finally settled. We’re moving towards some understanding but have not reached there yet. We’re working towards that.”
Declining to provide details because the issue remained “sensitive”, Mr Bethel added: “Nothing is finalised, and there’s still some work to be done before we can say we’ve arrived.”
Alfred Sears QC, who represents the Island Luck web shop chain, declined to comment when contacted by Tribune Business.