The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian gamblers will enjoy a two-month reprieve from the budget’s twin five percent levies because they are “not as easy and straightforward” to implement as the government thought.

Dionisio D’Aguilar, minister with responsibility for gaming, told Tribune Business that the delay in imposing the tax on customer deposits and over-the-counter (OTC) lottery sales stemmed from the need to “re-certify” web shop systems and games.

He explained that the recertification was a direct consequence of imposing the twin five percent levies, as this means all web shop computer platforms, games and payout ratios now have to be adjusted to incorporate the new tax.

These changes must be “certified” by an independent third-party examiner, who attests that the games offered by web shops will operate as advertised, and have not been “manipulated” to the industry’s advantage.

Mr D’Aguilar said the recertification process typically took four to six weeks to complete, forcing the government to push implementation of the twin five percent levies back from July 1 to the end of August.

“We thought initially they would take the money and throw the five percent in a bag, while putting the 95 percent on the customer’s account,” the Minister told Tribune Business. “It’s not so easy. It doesn’t work in the manner we thought. We thought it would be straightforward for them to do that.

“Once you get into the intricacies of how these programmes work, you have to make sure the changes they [web shops] claim to have made are re-certified, and this is how [the game] works based on the specifics given out.”

Mr D’Aguilar said that while most Budget-related tax reforms, including the web shop industry’s new ‘sliding scale’ taxation, took effect on or just after July 1, the need for recertification meant the direct imposition of the 5 percent levies on gaming patrons had to be delayed until end of August.

“What was found was that it wasn’t a sufficient period for gaming house operators to adjust their programmes to account for this new levy,” he added, suggesting the Government’s revenue loss from the delayed implementation was not significant.

“In the balance of things, OK, you’re giving up two months’ potential revenue until these changes are done, but then you have all that period on the other side,” Mr D’Aguilar said.

Consultants for the Bahamas Gaming Operators Association (BGOA), the body representing the web shop industry’s interests, previously forecast that the two five percent levies will suck between $13.3m and $19.9m annually from the pockets of Bahamian gaming patrons. This puts the potential revenue loss at between $1.1m-$1.67m per month, or $2.2m-$3.34 million for the two months.

Government sources, speaking on condition of anonymity, suggested the web shop industry itself was also partially responsible for the delay in implementing the twin levies on its customers.

They suggested the industry’s initial shock at the 2018-2019 Budget tax hikes had given way to a belief it would be able to apply sufficient pressure for the Government to alter course, which ultimately proved misplaced.

As a result, the web shops did not get moving on the recertification process until July 1 was almost upon them. Mr D’Aguilar declined to comment on this, but provided more details on how the certification process works.

“What happens is that all of the systems that are operated by the gaming houses are certified by a company that the programmes are working as they should,” he said, naming the company involved as GLI (Gaming Laboratories International).

“When you write a programme or have a game you offer online, the payout ratios and the way it operates is certified by a company that says the game operates under these specs. They go in, look at the programmes, and certify it’s operating as it should and none of the gaming house operators have gone in and manipulated it otherwise.

“If the payout ratio is 95 percent, this company goes in and certifies the payout is 95 percent of gaming patron spend. This relates mostly to the casino games.” Mr D’Aguilar said this was now “a bit more involved” as a result of the new direct levies on gaming patrons.

“All your games, your platforms have to be modified to account for the fact that, out of the money paid by the customer, 5 percent has to go to the Government and 95 percent on the account,” he told Tribune Business.

“It required a change to the programmes to account for this new methodology, and how money is credited to the customer’s account required some programme changes. Each individual operator now has to get the change to their systems to account for the new taxation methodology certified.

“You have to go and make sure that when they make these changes they don’t make any other changes. You have this company certifying that they did what they said, and that the changes are accurate and appropriate. That takes time; four to six weeks.”

Mr D’Aguilar said it was “too early to tell” whether the Budget tax increases will have the threatened impact on the web shop industry, in terms of jobs losses and location closures, and added that the Government was holding firm on the new ‘sliding scale’ structure.

“The Government is adamant that this new tax regime is going to remain in force,” he told Tribune Business. “It’s definitely the order of the day. We’re always open to a discussion regarding it, but our feeling right now is we believe we have settled on appropriate taxation and every year we review.

“That’s the nature of the beast, and in a year’s time we will review it again. Nothing is permanent in government. Governments are always changing and tweaking, and increasing and decreasing. That’s the nature of the beast.”

Christiansen Capital Advisors, the web shop industry’s advisors, branded the twin 5 percent levies on web shop patrons as “unprecedented” and “unique”, and something it had never encountered before in working in 50 US states and countries.

“It is likely that consumer behaviour will change somewhat in the face of this tax,” the Christiansen report said of the 5 percent Stamp Tax on customer deposits. “Today, customers can withdraw and reload their accounts at no additional cost. If this tax goes into effect, Bahamians will withdraw and deposit from their accounts less frequently.

“In other words, consumers are now disincentivised to withdraw from their accounts and reload the next time they come in. The extent to which they do this today is unknown but, in short, the ratio of deposits to consumer losses (operator revenues) will likely decrease.”

The Government is clearly seeking to reduce the amount, and frequency, with which Bahamians gamble, believing it is a social ill that is harming households and wider society.