The Lotteries and Gaming Act, 2016 is amended by substituting Schedule 4 which provides for a rate of twenty percent (20%) of the total amount of money staked less the pay outs (winnings) for the period of filing returns.
“Rate of tax
1. Twenty percent of the total amount of money staked less the payouts (winnings) for the period of filing returns for a betting activity.
2. Thirty percent of the total amount of money staked less the payouts (winnings) for the period of filing returns for the gaming activity.”
This proposed amendment is linked to the proposed amendment of Section 118C of the Income Tax Act which eliminates the 15% withholding tax from gaming. It follows from Fortuna Limited v URA TAT 132 of 2020 (decided on 7 October 2021) where Fortuna operated a casino providing gaming services such as slots, sports bets and tables.
The dispute revolved around interpretation of what amounted to a winning for the purposes of withholding tax payable on gaming services and at what point it should be collected.
Fortuna argued that to apply the tax the way URA desired would be a challenge as each game would have to be stopped at every round to administer withholding tax for each player who won yet some of the games like slot machines ran up to 20 spins per minute with each spin constituting a separate bet.
Further, wins from games are usually wagered over and over again and clients wanted to have lost wagers offset on a wager won prior to being taxed yet the law does not cover that. Section 118C did not define at what point a winning should be determined which raised questions of whether it was at every game or at the end of the day when the punter wanted a cash out. TAT held that:
“S. 118C of the Income Tax Act states that a person who makes a payment for winning of betting or gaming shall withhold tax. Therefore, the requirement to withhold tax arises when the Casino or the applicant makes payment and not when one wins. That is, when one cashes in the chips the person paying has to withhold taxes….When a chip is played it is a wager. One can still lose the chips. The taxing point is at the point of payment. When a gamer loses, the casino wins. The Taxing laws make provision for taxing the casino for such wins under the Lotteries and Gaming Act.”
The purpose of this amendment is therefore to ease administration by removing the withholding tax under Section 118C of the Income Tax Act from gaming in the Casinos and instead increasing the tax rate on gaming from 20% to 30% under the Lotteries and Gaming Act.