All bets off for online gambling, despite a Parliament proposal

Online gambling in South Africa remains illegal for now, but a proposal to legalise this activity sits before Parliament and has prompted polarised views on the matter.

Meanwhile, gambling on the web is growing rapidly – and eating the domestic industry’s lunch.

The Remote Gambling Bill, which seeks to legalise and regulate online gambling, has been brought to Parliament by the Democratic Alliance (DA). But the department of trade and industry, in a joint press release with the National Gambling Board last week, objected to the DA’s proposal that online gambling was “not desirable” and noted there was no intention to propose the legalisation of online gambling.

While the debate rages on, the local gambling industry is taking a knock.

The Casino Association of South Africa (Casa), which represents all but one operational casino in the country, has found the casinos industry grew by a mere 0.6% in the 2013/ 2014 financial year, and compares poorly with a 10.4% in the year prior. The major reason, Casa believes, is the upsurge in online gambling.

‘Government is losing money’
Many consumers and property owners, from which these operations are conducted, do not know that all online gambling is illegal and could result in hefty fines of up to R10-million or up to 10 years imprisonment, or both.

Last year the gambling industry paid cumulative tax of R2.2-billion in the 2013/ 2014 financial year. Casa chief executive Themba Ngobese said that even if online gambling sites did five percent of the business that the gambling industry did in the 2013/ 2014 financial year (a conservative estimate), it would result in a tax loss of R110-million. “Government is losing money,” he said.

Ngobese said the mushrooming of internet cafés and entertainment lounges, often with dark windows, had taken the domestic industry by surprise.

“We know that there has been an exponential growth of these recently,” he said. “We have been observing these operations but we never got to grips with how big they are and we hadn’t realised just how many there are.”

Social ills
The effect of illegal operations on the balance sheet of casinos and other legal gambling operations will have wider ramifications, Ngobese said. “When there is lower growth, like in any business, one of the first things you do is to cut costs. One of those costs would be employment and you would not have further investment.”

“We are not taking issue with online gambling necessarily; we have an issue with illegal online gambling,” said Ngobese. “It is unfair that we are competing with illegal online gambling operations when we have done all the investment in the industry … We can’t compete. If we did the same thing here the authorities would just shut us down.”

In the press release, the department said that although there were arguments that the government was losing on the opportunity to generate revenue through online gambling in the forms of taxes, “generating tax revenue cannot be at the expense of the South African citizens, some of whom are overindebted and living in poverty.

“There are a number of social ills associated with gambling, especially online gambling that occurs in unregulated and unsupervised locations.

“Other forms of gambling that are allowed in South Africa take place under strict supervision in locations that are designated for such activities … In our view, no amount of control will adequately curb the harm that may be caused to South African citizens by online gambling, hence we reiterate that it must remain a banned activity.”

Trying to ‘enforce an unenforceable ban’
The DA’s spokesperson on trade and industry, Geordin Hill-Lewis, who brought the proposal to Parliament, said it was not up to the department to determine legalising online gambling but rather the members of the parliamentary portfolio committee on trade and industry. “They can argue against it to the committee. But it is still very important to convince them the idea of banning online gambling is folly. I think we can find some sort of middle ground.”

Hill-Lewis said the department’s social argument was a red herring: “At the moment they have no control over what social damage online gambling is doing. They are trying to enforce an unenforceable ban.”

He said the proposed Bill would instead put control back into the department’s hands because online gambling services would have to comply with licensing conditions. The tax revenues from them would provide the resources needed to police this.

Hill-Lewis said that large companies were ready to move into the online gambling space should it be legalised, but other companies would not be able to compete such as bingo operators and suppliers of Limited Payout Machines (a gambling machine with a restricted bet and prizes), which are widespread in pubs and restaurants across South Africa. “Those companies are extremely well connected and have a powerful lobby in government.”

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