The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The ex-minister who oversaw the web shops' legalisation yesterday said it was an "ideal time" to introduce a national lottery, suggesting it could generate $150-200m per annum.

Obie Wilchcombe, the former minister of tourism, while criticising the government for sharply increasing taxes on domestic gaming, urged it to use provisions in the Gaming Act 2014 to instead pave the way for a national lottery.

"I think what is happening now is a step backward. We should be giving consideration to what is in the law, and that is being open to a national lottery. This is the ideal time to do it," Mr Wilchcombe argued.

"The government could in fact become a partner with the gaming houses, meaning that the government will become the owners of the lottery, and the Gaming Board will assist in its management and setting-up."

Mr Wilchcombe, who had responsibility for gaming under the former Christie administration, argued that a national lottery would not only be an attractive sell to Bahamians but could also capture at least a million of the five to six million annual tourists who visit The Bahamas. He added that the revenue generated could be used to fund educational, healthcare, sports and cultural programmes.

"The Minister does need to go back to Parliament," he explained. "The minister can just sign it into law; whenever he is ready he can just go." Mr Wilchcombe had raised the possibility of a national lottery in 2016 as a means to help fund hurricane restoration efforts, with Hurricane Matthew at the time having caused $600m in damage to this nation.

"The gaming houses can continue to pay the 11 percent, and the government can get funding from a lottery that is drawn, say every month, two months or three months," the former minister added.

"When you consider that we have five to six million visitors annually, and say a million buy a lottery ticket together with the local market, that could easily generate significant revenue for the government.

"The approach we are taking now is taking us backwards. You don't tax one group and predicate it on what their earnings are. They have not taken into account that these individuals had to pay millions in back taxes and all of their fees."

Mr Wilchcombe continued: "We started with 16 companies during the regularisation process, and today we have seven left. They hire more people today than the casinos. The casinos don't have as many people employed, and they are paying much lower taxes - under 10 per cent.

"If you want revenue generation, you don't have to over-tax them. Work with them and create a new segment to earn revenue. I personally believe a National Lottery could raise $150 to $200 million. We don't want to see any mass lay-offs, and we don't want this thing to go underground. We don't want it to get to the point where they go online, where only they [the web shops] will benefit."

Under the new 'sliding scale' set to take effect on July 1, web shops will pay a 20 per cent tax on up to $20 million of their revenue; a 25 per cent tax on between $20 million and $40 million of their revenue; a 30 per cent tax on between $40 million and $60 million of their revenue; a 35 per cent tax on between $60 million and $80 million of their revenue; a 40 percent tax on between $80 million and $100 million of their revenue; and 50 percent on revenue above $100 million.

Three web shop chains - Island Luck, Asure Win and Paradise Games - have already warned that they will terminate workers and close store locations by month's end as a result of the tax increases. Between the first two combined, around 400 jobs are at stake, although FML Group of Companies has pledged to buck the trend and retain all staff and locations.

This is still some way from the 2,000 jobs, and 192 web shop locations, that a Bahamas Gaming Operators Association-commissioned study warned would be lost if the Government proceeded with its proposed taxation structure.

However, the potential loss of 400 jobs in a society as small as the Bahamas' will still have a large 'ripple effect', especially on the individuals and families involved. And the situation highlights what may happen in a wider sense with the VAT increase to 12 per cent - a move that will likely result in reduced consumer demand and spending.

Such a decline will lead to reduced business sales and revenues, prompting companies in general - not just web shops - to lay-off staff to better align costs with income. Unemployment increases, further depressing consumer spending, with the result that lay-offs and reduced spending feed off each other in a downward economic spiral.

Still, the web shop industry's own studies have backed up the Government's argument that six of the seven operators fall into the lowest 20 per cent tax bracket. And, with the same research suggesting a tax rate of between 15-20 per cent of gross gaming revenue (GGR) is in line with global standards, the majority of the industry is thus in line with global best practice.

The report by Christiansen Capital Advisors shows that all six of FML, Ultra Games, Asure Win, Island Game, Paradise Games and Chances will largely be taxed at 20 per cent - a rate that is some 81.8 per cent higher than the 11 per cent they currently pay. Only Chances, where a portion of its revenue falls in the 25 per cent category, faces a slightly higher overall rate at 88.6 per cent.

The data is skewed because the market leader, Island Luck, faces an effective 184.3 per cent in its overall tax rate under the new sliding scale structure, taking the overall industry increase to 138.9 per cent.

Still, the Christiansen report argued that the Bahamas' current 11 per cent rate - low by international comparisons - was effectively a trade-off for the web shop chains keeping a higher level of staff and number of locations.

Dionisio D'Aguilar, who currently has ministerial responsibility for gaming, said some web shops were on the verge of downsizing even before the planned tax increase was announced. The Government is arguing that the web shops are using the tax increase as an 'excuse' or 'cover' for downsizing they would have undertaken anyway as the industry shifts to an online gaming model. This enables them to blame the Government for any job losses.