The Tribune

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.