An unrealistic forecast?

The government continues to face pushback from gaming house operators in its bid to implement a patrons winning tax.

In December 2020, the government announced plans to implement the tax on patrons’ winnings (5 percent tax on winnings up to $1,000 and 7.5 percent on winnings over $1,000), with effect January 2021.

This did not happen, but the Minnis administration intends to introduce the tax in the coming fiscal year.

The government has projected to collect $23.1 million in gaming house taxes in this current fiscal year.

It forecasts revenue of $41 million in gaming taxes in 2021/2022.

But CEO of The Bahamas Gaming Operators Association (BGOA) Gershan Major told National Review yesterday the projected gaming house tax revenue is based on a “flawed assumption”.

He said the BGOA is “gravely concerned” about the budget forecasting certain yields from the proposed implementation of the patron taxes on lottery winnings, given the current market environment.

“It is our concerted belief that if implemented, such a measure will have material untended consequences,” Major said.

“The first will be on the reputation of The Bahamas financial services sector, as a consequence of an explosion in the unregulated ‘black’ gaming market, which was evident during the extended closure of gaming operations brought about by the pandemic.

“The unregulated black market increased exponentially in an unabated fashion, as a result of hand held, Bluetooth-enabled devices amongst other stealth tactics employed by these unscrupulous operators.”

The Bahamas enjoys a highly regulated domestic gaming industry, Major noted.

“We fear an almost immediate erosion of the tremendous regulatory strengthening of the industry over the past seven years, if patron winning taxes are implemented, with the unintended but known consequence of an ever-increasing black gaming market,” he added.

Major also said the severe channeling of patrons to the unregulated black market would significantly increase social and financial risks to patrons, where there is no responsible gaming regulated safety net.

“Patrons play is about the best possible yield and at the least cost,” he noted. “A patron winnings tax would create a reduced yield in their wins, in the regulated domestic gaming environment, resulting in increased channeling to the black market.

“The unintended but known consequence of channeling patrons back to the underground market, has far-reaching negative macro and micro economic, social and reputational impacts.”

The operators also fear that as an unintended consequence, patrons play would be significantly reduced, resulting in contracted sales in the regulated domestic gaming industry.

“Such contraction will veritably result in reduced wins and, therefore, far below any forecasted taxes for the government,” Major said.

“Like many governments around the world, we recognize that The Bahamas government is facing significant fiscal imbalances and shortfalls. We also recognize the need to seek ways to mitigate those shortfalls for increased yields.

“However, seeking to implement a winning lottery tax on patrons in our view will not provide the forecasted return the government is projecting but will yield the unintended but real consequences, as we have outlined.

“We, therefore, call on the government to consult more broadly with us on this issue to better gather and study the empirical data to avoid a path of no return.

“It’s a flawed assumption based on the fact that the government of The Bahamas is projecting that play will increase while in fact we believe it will significantly decrease because patrons prefer to win at the least cost; and at the end of the day, when you have regulated industry being taxed and the unregulated black market on winnings not being taxed then you would see a channeling of patrons play.”

In its fiscal snap shot for the first nine months of the 2020/2021 fiscal year, released in May, the Ministry of Finance said gaming taxes contracted by $14.4 million (46.7 percent) to $16.4 million.

“Proceeds from the patrons winnings tax implemented January 1, 2021 have not resulted in improved revenues due to a legal challenge by the Association of Gaming House Operators in respect to the application of the tax,” the fiscal report stated.

Speaking on Monday, Acting Financial Secretary Marlon Johnson said the significant jump in revenue expected from gaming houses in the 2021/2022 budget is due to the confidence of the Office of the Attorney General that it will reach a settlement with gaming house operators before the budget comes into effect on July 1.

“They know why they are being confident because they are not leaving it up necessarily to the courts to make a determination on it,” Johnson said.

But based on the statements from the BGOA, that confidence seems misplaced, and the increased revenue from the gaming houses appears unachievable.

While the projected revenue from gaming taxes is a small fraction of the overall revenue the Minnis administration intends to bring in, it could signal the unrealistic and overly optimistic approach the government has taken to its revenue projection, which is forecast to come it at $2.4 billion in 2021/2022 – almost as much as what was collected in 2018/2019 prior to the Hurricane Dorian and COVID-19 crises.

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