Tax on Gambling

Tax in South Africa and the Law

The Remote Gambling Bill was the piece of legislation that attempted to regulate online gaming in South Africa. It aimed to introduce strict regulation, licenses, fees, and excess gambling for online gaming sites but was turned down due to negative public comments. Since the act was first proposed in 2016 by ex-minister Geordin Hill-Lewis, South Africa has taken huge leaps in laying down the rules guiding taxes in the gaming sector. There are nuances surrounding paying taxes on gambling proceeds. When it comes to treating gambling winnings as taxable, two relevant and contradictory pieces of law are often cited.

The first was the case of Graham v. Green, dating from 1925, which stated that gambling winnings were not to be considered as profits or gains, as a bookmaker's earnings were. The latter could be taxed, but the former, since they were not the result of organised activity, were not liable to be taxed. Operators pay gambling tax on their profits in most cases although

In the case of Morrison v. CIR, it was found that a gambler who carried on regular betting activities was liable to pay taxes on his winnings. Regular gamblers paying gaming taxes on their winnings was deemed necessary because professional gambling is a recognised taxable event. Professional gamblers in the country are expected to pay taxes on their revenue.

The Morrison case made the legal situation even more complicated for the South African government. It also indicated that the issue of whether gambling proceeds could be taxed should be decided case by case.

How Gambling Tax Works in South Africa

The legal reality of online gambling taxation in the country is that the South African Revenue Service (SARS) does not tax gamblers who bet for entertainment. They do seek to levy tax on the profits of gamblers who are organised and successful enough that their gambling could be considered a regular means of income. The argument appears to be that if you bet regularly, it is not a leisure activity. As a profession, the laws guiding profit mandate players to report and pay taxes on profits from gambling. This also means players who report losses are exempt from paying taxes, as seen with casino operators.

For a small group of people, including those who work in the betting or gambling industry or in sports that are regularly the subject of gambling, any winnings they gain can be taxed, as it is considered that those profits arose as a result of their work. Therefore, workers within the gambling sector will pay taxes on any money made from bets or other gambling proceeds because they are classified as professionals.

So what about South Africans who gamble online? The National Gambling Board recognises casual punters as exempt from paying taxes. This is because gambling is not considered a regular form of income or employment. Hence, you will not have to pay tax on any winnings. This will be the case whether you bet on the lotto, horse races, sports, or casino games. It applies to all forms of taxation, including capital gains tax, though there is an important caveat.

In theory, winnings obtained through foreign gambling or illegal gambling in South Africa could be liable to capital gains tax. This is particularly relevant for online casino players, who are often forced to use foreign-based casino sites due to the uncertain legal status of South African online casinos. If you are in doubt about your requirement to pay tax, it could be worth speaking to a legal or tax professional on an informal basis.

Here is a brief look at how the National Gambling Board views winnings from different online gambling activities:

• Lottery Winnings: Money won from the lottery is not subject to tax regulation from the National Gambling Board. Players are required to report their winnings to SARS (South African Revenue Service) when filing their annual tax returns. Although they are not taxed, SARS would like to be kept aware of money won from lottery winnings.
• Casino Winnings: These are classified into two different groups of gamblers. The first are people who gamble leisurely and as a hobby, while the second group are individuals who make money from gambling professionally. The laws governing casino proceeds taxation exclude casual gamblers, while regular gamblers who are judged to be professionals are taxed. Casual gamblers usually make more losses than profits and are overlooked by SARS. Meanwhile, professional gamblers are taxed because they are in it to make a profit and the laws recognize it as a job.
• Sports Betting Winnings: This gambling vertical includes bets on football, tennis, horse racing, and other sports. This gambling vertical shares the same gambling tax regulation with casinos. Sports bettors in South Africa are not taxed as long as they are casual players. Professional or regular sports bettors will be required to pay tax on their wins.

The Future of Gambling Tax in South Africa

The South African government has at various times adopted an inconsistent approach to online gambling and the associated tax issue. There are examples of ministers and officials indicating that tax should be paid on their winnings by all gamblers. It does not matter what their level of experience or profit, whether you are a lucky lottery winner or a successful sports gambler.

Such possibilities are alarming for South African online gamblers. There remain some significant practical obstacles to any attempt at taxing such winnings. For a start, if winnings can be taxed, as with the profits of bookmakers and casinos, can losses be used to offset the winnings for tax purposes? As many online gamblers will tell you, they may profit one day and lose the next, so in theory, they should be allowed to deduct any losses from any profits or fees. This is before a final tax amount is calculated; a process that could be extremely complicated.

More fundamentally, it is not clear how a tax on online gambling winnings would even be collected or at what stage of the gambling transaction the tax would apply. Ultimately, resolving the tax issue is simply part of the wider problem of the status and legality of online gambling. Any attempt by a government to address the former will need to resolve the latter so that South African online gamblers can know exactly where they stand.

Frequently Asked Questions about Gambling Tax in South Africa