By NEIL HARTNELL
Tribune Business Editor
THE Government is facing two separate web shop Judicial Review challenges over the 5 percent patron tax, both of which allege the September 1 implementation date was forcing them to break the law.
Besides the much-publicised action launched by Sebas Bastian’s Island Luck, three other web shops – including Paradise Games and The Island Game – launched a similar complaint after finding themselves “at a loss” over how to implement the tax while remaining compliant with the sector’s governing law, the Gaming Act. Both Judicial Reviews, which appear to have effectively been consolidated into one action, are challenging the alleged “arbitrary” date set by the Ministry of Finance for the 5 percent levy’s introduction on customer deposits and over-the-counter (OTC) lottery sales.
Central to their case is the claim that web shops were given insufficient time to certify their games and technology platforms to accommodate the five percent levy, with the offering of any uncertified games violating the law and potentially “eroding public confidence” in the sector.
Erica Laing, The Island Game’s executive director for administration and finance, alleged in an August 30, 2018, affidavit that numerous concerns raised with the Treasury and Ministry of Finance over the 5 percent patron tax had not been satisfactorily addressed with two days to go before the September 1 implementation deadline.
She added that replies received from Marlon Johnson, the acting financial secretary, appeared to be “inconsistent with the law”, while both web shop Judicial Reviews complained about a lack of guidance from the Gaming Board, their primary regulator, as to how the levy on patron deposits and over-the-counter (OTC) lottery/ticket sales should be incorporated into their technology platforms.
The Gaming Board then allegedly instructed the sector that they were to collect the 5 percent patron tax manually if their games could not be re-certified in time for the September 1 deadline – something Ms Laing described as impossible to do.
“Requiring the cashiers at gaming houses to operate a manual system for collection of Stamp Duty would be unreasonable,” she alleged. “As a fact, cashiers are entry level employees who are not required to have extensive accounting or other qualifications.
“It is likely that our patrons will come to our premises and tender a sum of money, and ask that our cashiers take out the Stamp Duty and deposit the balance on their account, or tender a sum of money and ask how many ‘3’ or ‘4’ ball numbers they can purchase over-the-counter after the Stamp Duty is taken out.
“One need only consider the number of calculations necessary to determine how much would be deposited on the patron’s account if the patron tenders $10 to a cashier to take out the Stamp Duty and to deposit the balance on the account,” Ms Laing continued.
“Patrons routinely purchase five and 10 cent ‘numbers’ over-the-counter’. We have heard patrons indicate an intention to purchase tickets over-the-counter for a sum that would attract Stamp Duty at a rate of less than 1 per cent.
“This will create the problem, for instance, if we were to round the Stamp Duty up on a 10 cent number purchase, the actual Stamp Duty collected would be 10 percent and not the specified 5 percent.”
Ms Laing also said the time allowed for web shops to alter, test and recertify their games was “unreasonable” compared to that afforded the retail and wholesale industry in adjusting to 12 percent VAT and the ‘zero rating’ of breadbasket items – something she indicated was easier by comparison.
Web shop systems and games have to be “re-certified” by independent testing laboratories any time changes – such as the introduction of the 5 percent levies -are made. This gives players confidence in the game’s integrity, that it does what it says it does, and has not been manipulated to the house’s advantage.
And, prior to going to the laboratory, the games have to be altered and tested by the web shops’ own software developers – a process that takes time.
It appears, though, that the industry only turned its mind to implementation – and the associated difficulties – in late June 2018, almost a month after the Budget’s unveiling. It is unclear why the response took so long, but it is possible the web shops thought they could successfully lobby the Government to back down from its plans.
Ms Laing, on The Island Game’s behalf, wrote to acting Gaming Board secretary, Ian Tynes, on June 29, 2018, seeking “directives” on “proper procedures for the implementation” of the 5 percent patron tax.
“In order to properly put in place a procedure for the tax, programming will have to be done to create the proper flow for deduction, reporting and payment of collected funds,” she wrote. “Any programming which is created cannot go live until the necessary testing is done, and certification of the same is obtained from Gaming Laboratories International.
“We find ourselves at this time at a loss on how to proceed to meet the requirements of the Government for the new tax while remaining compliant with the controls and standards required as a gaming house operator.”
Ms Laing repeated these concerns in a letter sent three days’ later to Marlon Johnson, the Ministry of Finance’s acting financial secretary, in which she wrote: “Given the sheer volume of deposits and tickets generated daily, it is virtually impossible to ‘collect’ the taxes from the customers without a programme in place which properly accounts for the difference in the cost of tickets, and deposits, and allocates the Stamp Tax to the correct suspense account for monthly reporting and disbursement.”
Similar concerns were expressed by William Fountain, attorney for Paradise Games, in a letter to Mr Johnson on July 5, 2018. He revealed that the web shop’s software developer had advised that the necessary changes to incorporate the 5 percent patron levy would take 30-60 days, with independent certification requiring 30-120 days – meaning the entire process to comply with the Gaming Act could last up to six months.
Describing the time allowed for compliance as “almost non-existent”, Mr Fountain said overriding the technology with a manual collection system would increase Paradise Games’ expense and expose the web shop “to a greater degree of possible fraud”. The web shop’s systems were said to be handling 750,000 transactions per day.
Gershan Major, the Bahamas Gaming Operators Association’s chief executive, also warned in a June 25, 2018, letter to Mr Tynes that re-certification of software platforms and games could take between 11-18 weeks. He described October 1, 2018, as “a reasonable and responsible timeframe” for implementing the 5 percent patron tax and enabling the industry to comply with the Gaming Act and accompanying regulations.
The Government first delayed the 5 percent patron levy from July 1 to August 13, and then pushed it back again to September 1 with the proviso that all games and related platforms be certified by August 25 – dates that the web shops said were still too difficult to meet.
Both Island Luck and The Island Game, on August 16 and August 8, respectively, sent Mr Johnson a list of issues they were seeking clarification on – ranging from rounding and the treatment of voided transactions to franchise commissions and store deposits – for which they allege they did not receive satisfactory answers, and guidance, from Mr Johnson.
Island Luck’s principal, Sebas Bastian, alleged that Mr Johnson responded to only four of the chain’s 10 concerns, and added that he was “unclear” about the issues relating to ‘for store deposits’ and ‘for tax reporting’.
Apart from blocking implementation of the 5 percent patron tax, the web shops’ Judicial Reviews are also asking the courts to declare it void on constitutional grounds because it has not been levied on casino hotel patrons.
And they want similar treatment for the industry’s new “sliding scale” taxation structure on the grounds that its imposition on “revenue collected breaches the industry’s regulations that this be assessed on “taxable revenue” or a percentage of earnings before interest, taxes, depreciation and amortization (EBITDA).