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New Gaming Assoc. reports project dire impact from tax hike

New gaming association reports project dire impact from tax hike

The Fiscal Responsibility Bill, 2018, once enacted will force the government to produce a series of financial reports throughout the year, including a pre-election economic and fiscal update report, according to Deputy Prime Minister Peter Turnquest. 

The Bahamas Gaming Operators Association (BGOA) released two more reports yesterday following government’s claims about the domestic gaming industry and its comparisons to other jurisdictions, in particular state-run lotteries in other countries. These new reports continue to foreshadow a decline in the industry, decline in taxable income and a massive drop in employment in the sector if government moves ahead with its proposed taxes on the domestic gaming industry.

The BGOA’s press release stressed that the sector is not averse to increased taxation, but would like fair taxation in the face of government’s new sliding scale approach to taxing the sector.

To justify its position, the government released global gaming information that the BGOA said is not relevant given the nuances of the local gaming sector.

“The Christiansen Capital Advisors report discredits the use of state lottery monopolies as comparable to gaming houses in The Bahamas, suggesting that the decision to raise taxes on the gaming industry may have been made under false pretenses,” the BGOA release pointed out.

“The Ministry of Finance asserted that 78 percent of taxable revenue on gaming is paid to the state in Florida. However, they failed to disclose that the Florida lottery is not comparable to gaming houses in The Bahamas. It is a state-owned and operated lottery and not a private enterprise subject to taxation. Unlike gaming house operators, who employ just under 3,000 Bahamians, the employment of government lotteries, such as the Florida Lottery, is negligible. The entire sales operation is outsourced to retail businesses that act as lottery agents – convenience stores, news stands, etc. The only cost the Florida Lottery incurs for a huge sales network is five to six percent of sales commission to lottery agents.

“The Ministry of Finance has also asserted that 78 percent of taxable revenue in the United Kingdom is either paid to the state or approved charities. However, the Ministry of Finance failed to disclose that the online gaming industry in the United Kingdom, the largest in the world, is taxed at 15 percent of GGR (gross gaming revenue) or point of consumption tax. The United Kingdom Lottery is state-owned and pays no taxes.

“Surely, a state-owned lottery, which is not subject to taxation, is not comparable to the private licensed online gaming houses in The Bahamas, in terms of business model, capital structures and employment requirements.”

The BGOA’s two new independent reports come from international firms Christiansen Capital Advisors, LLC and Oxford Economics.

According to the BGOA, under the government’s proposed taxation model, smaller gaming houses will be forced to close up shop while larger houses will downsize and cut staff.

“Domestic gaming employs 2,753 Bahamas residents, including nearly 800 on the Family Islands,” Oxford Economic’s report states.

“When the full economic impact of the industry is considered, Oxford Economics estimates that an additional 1,130 jobs are supported in a variety of sectors throughout the country. All this activity contributes to national GDP (gross domestic product) and generates tax revenue for the government. In fact, each employee of the domestic gaming industry contributes more than $100,000 to national GDP each year.”

The Christiansen Capital Advisors, LLC report found that government’s projection of returns from the new tax regime are “based upon faulty assumptions and will not generate the expected returns”. The report notes that the new taxes will result in gross gaming revenue declines of $30.2 million to $42.2 million. The reduction in revenues will cause operators to close and others to downsize. Workers will be displaced and facilities will reduce payrolls, resulting in increased jobless benefits and decreased tax revenue. Closed and downsized facilities will mean loss of rental income, marketing and IT services to other industries