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Web Shops Split Over Tax ‘Solution’

Attorney Wayne Munroe, QC. Photo: Terrel W. Carey/Tribune Staff

Attorney Wayne Munroe, QC. Photo: Terrel W. Carey/Tribune Staff

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Not all web shop operators have signed up to the tax settlement with the government, a prominent QC revealed yesterday, suggesting legal challenges remain a possibility.

Wayne Munroe QC, who represents the Island Game, Paradise Games and Asure Win chains, told Tribune Business that “resolution wasn’t agreed” between his clients and the Minnis administration despite the latter trumpeting that agreement was reached in mid-February 2019.

Speaking after the government yesterday tabled legislative and regulatory changes in the House of Assembly to give effect to the “settlement”, Mr Munroe said Sebas Bastian’s Island Luck and Ultra Games were the only two operators “as far as I’m aware” who had agreed to its terms.

“Resolution wasn’t agreed,” he confirmed to Tribune Business yesterday. “We had discussions. They never concluded. They have tabled what they have tabled. I’ll arrange to get a package of what they’ve done, look at it and take instructions to see what piece of it my clients may wish to challenge.

“No, there was never a resolution. The only persons I know of which reached agreement with the Government are those two, Island Luck and Ultra Games.”

Tribune Business has frequently heard that web shop operators, other than those controlled by Mr Bastian, were unhappy with the proposed settlement but apart from little hints none were prepared to speak “on the record” until Mr Munroe commented yesterday.

Alfred Sears QC, who represented Mr Bastian’s businesses in negotiations with the Government, had previously told this newspaper that the deal “may create a problem” for other web shops although he did not elaborate.

He acknowledged at the time that the deal “will create some uncertainty for some of the smaller operators”, adding: “That’s likely to happen. It may create a problem for some operators.”

Mr Munroe’s comments yesterday indicate that a legal battle between the Government and some elements of the web shop industry, namely the smaller operators, remains a distinct possibility. Such a scenario, should it arise, will result in the return of further uncertainty surrounding the sector’s taxation and business model going forward.

Tribune Business reported at the time that its analysis of the “settlement” showed the prime beneficiaries are Mr Bastian and Island Luck, as the largest web shop chain and market leader, and the Government. Those likely to fare less well were the smaller web shop chains.

This is because Island Luck, as shown by research from Christiansen Capital Advisors, the web shop industry’s own consultants, was virtually the only operator exposed to the higher tax rates under the Government’s original “sliding scale” taxation structure.

It was the sole web shop chain exposed to rates ranging from 30 percent to 50 percent on its gross gaming revenues, whereas five of the remaining six operators would only have faced the lowest 20 percent rate. Chances was the only chain, apart from Island Luck, which would have seen a 25 percent rate levied on a miniscule portion of its revenue.

The Government, in unveiling the agreement, said it would reduce its projected take from the “sliding scale” by $15m annually - from the initially projected $50m to $35m - as a result of shrinking the six rates to just two, lower levies of 15 percent and 17.5 percent, respectively. The latter rate kicks in for taxable revenue higher than $24m.

While the bulk of Island Luck’s revenues will be taxed at 17.5 percent, this is much lower than the rates originally proposed in the 2018-2019 Budget. As a result, it seems likely that much of the $15m revenue reduction will accrue to this web shop.

While its six rivals will largely only attract the lower 15 percent rate, this still represents a 36.3 percent - or more than one-third increase - upon the 11 percent rate they were originally paying. And the five percentage point reduction in the originally proposed 20 percent rate means they will likely see fewer benefits than Island Luck.

The Government yesterday tabled changes to both the Gaming Act and Gaming House Operator Regulations to give effect to the “settlement”, as well as amending the Stamp Act to eliminate the previously proposed 5 percent “patron tax” on customer deposits and over-the-counter lottery ticket sales.

That has been replaced by a “winnings tax”, which was due to be levied from April 1 (Monday) on winnings associated with lottery bets. The changes, which confirm that the tax will only be levied on the actual winnings, provide for the “sliding scale” whereby winnings up to $1,000 will attract a 5 percent rate.

Anything greater will attract a 7.5 percent rate, and the Government expects this to generate $15m as opposed to the initial “patron tax” forecast of $25m. Web shops must submit monthly tax returns, and payment of the operator “sliding scale” and winnings tax, by no later than the 10th of the following month or “the next business day” if that is Sunday.

The operator tax is due to take effect retroactively from January 1, 2019. The settlement, and the Government’s position, has shifted much closer to that taken by the web shop industry in the immediate aftermath of the 2018-2019 Budget’s unveiling, as the operator tax rates fall into the 15-20 percent range that the sector’s consultants argue represents the global gaming average.

Dionisio D’Aguilar, minister of tourism and aviation, who has responsibility for gaming, previously told Tribune Business that the Government was now projected to earn $50m per annum - rather than the initially forecast $75m - as a result of the reforms.

While this represented a one-third, or 33.33 percent, reduction from the 2018-2019 Budget’s target, the Government argued that it still represented a 127 percent increase in revenue generated by web shop taxation - thereby making for “an acceptable compromise”.

Mr D’Aguilar, speaking after the Government confirmed the settlement with the web shops, said the deal would enable the Public Treasury to claim “back taxes” to July 1 and have instant access to revenue rather than seeing an important income stream tied up in expensive and costly litigation.

So-called “back taxes” for the first half of the 2018-2019 fiscal year - from July 1-December 31, 2018 - are to be levied using the web shop’s old taxation rate of 11 percent of gaming revenues.

Mr D’Aguilar estimated this will generate around $11-$12m for the Treasury based on previous full-year collections of $21m, which is less than 50 percent of what the Ministry of Finance had projected to earn - $15m “sliding scale”, and $10m from the “patron tax” - during that period.

However, he argued that the Government will still achieve its twin main objectives - increasing revenues from a sector it felt was “undertaxed” and had the ability to pay much more, based on the multi-million dollar sums flowing through it, while also slowing the sector’s growth and potentially deterring Bahamians from unhealthy levels of gambling.

Comments

DDK 7 months, 2 weeks ago

So close them down, and the other two as well, and let the general economy head upwards as it should for a change. Even the lawyers are getting rich off the back of this scourge on our society.

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Well_mudda_take_sic 7 months, 2 weeks ago

Doofus Minnis and the constantly yapping white-haired poodle (D'Aguilar) would rather tax the rest of us to death than put the corrupt racketeering numbers bosses out of business or make them pay anywhere near their fair share of taxes given all of the harm they cause our society. And that's because Doofus Minnis, his poodle (D'Aguilar) and the FNM party have made a deal with these devils and don't want to bite the feeding hands of King Sebas of Lucky Charms and Prince Craig of Flowers Galore. LMAO

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screwedbahamian 7 months, 2 weeks ago

Once you have a wish'y- wash'y Government, the Web shop people ( business) will never be satisfied until they have full control of the nation and make the rules as they see fit. That is the nature of their business. The previous government and the Current government fail to understand, the process of a National cancer and its progression stages. Stop the MADNESS, Pass Legislation to revoke all Web shops licenses and implement in its place a NATIONAL LOTTERY that will benefit all Bahamians. Start giving back to the people as that was the purpose for which you were elected.

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Well_mudda_take_sic 7 months, 2 weeks ago

Bahamians are dying because of our grossly under-resourced healthcare system, yet Minnis, Turnquest and D'Aguilar are falling over one another to grant millions and millions of dollars of tax breaks to the corrupt numbers bosses like Sebas Bastian and Craig Flowers. The Minnis-led FNM government only care about the political elite and their cronies. They could not care less about the rest of us, even if it means death for us, death for our family members and death for many of our fellow Bahamians. When the wealthy political elite get sick, they have health insurance at the taxpayers' expense that enables them to jump on a plane and get the best healthcare available anywhere in the U.S. So why should they care about the rest of us and our pathetic public healthcare system? Minnis and his crew have turned out to be the most uncaring government our country has ever had and many Bahamians are paying the ultimate price when they fall seriously ill or require emergency medical care. And that's an indisputable fact!

Sorry nurses, but Minnis, Turnquest and D'Aguilar are are much too busy giving millions and millions of dollars of annual tax breaks to the racketeering numbers bosses like Sebas Bastian and Craig Flowers to worry about paying your overtime pay.

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