The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE web shop industry’s legal challenges to the Budget tax increases will “put more pressure” on the Government’s 2018-2019 fiscal forecasts and could force some “cut backs,” the Deputy Prime Minister has admitted.

K P Turnquest told Tribune Business that while the ongoing Supreme Court battle will not “totally destroy” his fiscal projections, the “$30-$40m” revenue increase that the web shop industry is forecast to generate cannot be dismissed lightly given the Government’s financial constraints.

He added that the two Judicial Review actions, brought by by four web shop chains, raised “fundamental issues” about the Government’s “right to implement taxes” as it saw fit, and without hindrance. Technology challenges, related to the need to ensure all web shop games comply with the Gaming Act’s certification requirements, and now coupled with the court battle, will mean the Government misses out on an entire quarter of revenues projected from the 5 percent tax on patron deposits and over-the-counter (OTC) lottery/ticket sales.

And the “sliding scale” taxation structure, which taxes different portions of web shop revenue at a rate between 20-50 percent, has also now been “stayed” until at least October 5 as a result of the dual legal challenges.

“It’s not going to totally destroy the fiscal projections, but obviously it’s going to put more pressure on them,” Mr Turnquest told Tribune Business of developments.

“Forty million is $40m. If you don’t have it, it means you’ve got to cut back. We’re going to have to see how quickly this case can be heard, because there are some fundamental issues that are involved; the state’s ability to implement taxes as a right.”

Mr Turnquest added that it was “too early to say” how much revenue the Government may relinquish as a result of the web shops’ decision to take their battle with the Government over the new and increased taxes before the Supreme Court.

“We’ll have to evaluate that,” he told this newspaper. “I can’t remember off the top of my head. On the 5 percent I don’t know what that number if. I could imagine around $15m.

“On the overall [increase in taxes] from the web shops, it’s about $30-$40m we’d anticipated collecting. I don’t know where this will end up, but it will be an interesting case.”

Tribune Business’s ‘back of the envelope’ calculations suggest the Government may have been seeking more than $30-$40m from the combined “sliding scale” tax structure and 5 percent patron Stamp Duty.

A review of the 2018-2019 Budget documents shows gaming taxes near doubling, increasing by almost $34m from a projected $36.5m in 2017-2018 to $70.039m this fiscal year.

With no changes to casino tax, the extra $34m is forecast to come from the “sliding scale” structure. Given that the increase is almost $3m per month, its suspension for September at least suggests the Government is now going to forego that figure.

And while the 5 percent patron Stamp Duty is not “broken out” in the Budget, other Stamp Tax is shown as jumping from a mere $15,000 in 2017-2018 to more than $20m this fiscal year.

The increase likely represents the patron tax. Given the magnitude of this increase, and with one quarter of the 2018-2019 fiscal year already lost, the data suggests the Government may have lost $5m of this increase already.

Dioniso D’Aguilar, the minister of tourism and who has responsibility for gaming, previously told Tribune Business that The Bahamas’ “national interest” demanded that the government “slow down the rate of growth” in web shop gaming through increased taxation.

He said too many Bahamians are “robbing their livelihood” to feed an industry whose gross gaming revenue (GGR) will have almost doubled in just four years if 2018 forecasts prove accurate.

The minister, who has responsibility for gaming regulation, reiterated his belief that a web shop sector generating around $50m in collective profits would be able to absorb the tax hikes more easily than it is letting on.

Pointing to the 92 percent top-line growth forecast to be enjoyed by the web shops since 2014, Mr D’Aguilar said this $100m-plus revenue rise was evidence that the sector had been able to shrug off a much greater trauma - the impact of its legalisation four years ago.

“The gaming industry is growing so exponentially,” he told Tribune Business, pointing out that web shops’ collective GGR had increased from $112m in 2014 to $154m in 2015, representing a $42m year-over-year increase in the first year of legal operations.

Mr D’Aguilar added that the industry’s revenues had grown by around $20 million “every year thereafter”, hitting $175 million and $195 million in 2016 and 2017 respectively, with projections of similar growth to $215 million for 2018 (prior to the Budget’s tax changes).

“It’s almost doubled in four years,” the Minister said of GGR. “It’s in the national interest to slow down the rate of growth. We don’t want people to keep throwing money into this.

“People clearly want disposable income to put into gaming. They’re robbing their livelihood, quality of life, in order to feed this past-time.”

Under the web shop industry’s new sliding scale tax, those operators earning up to $20m in revenue will be taxed at a rate of 20 percent. Six of the seven chains fall only within this bracket.

Revenues falling between $20m and $40m will be taxed at a rate of 25 percent, while earnings between $40m and $60m will be taxed at a rate of 30 percent.

Revenues between $60m and $80m will attract a rate of 35 percent; those between $80m and $100m, some 40 percent; and those over $100m will be levied at 50 percent.