We know that over the course of history, almost everything conceivable has been taxed: bricks, candles, coal, glass, newspapers, salt, soap, sugar, tobacco, windows, tea… and the list continues.
On 31st March 2023, Ghana’s parliament passed the Income Tax (Amendment) (No.2) bill, 2022. Among the provisions is the re-introduction of the 10 percent tax on winnings from lottery that was scrapped in 2017. Lottery is seen as an investment, and any returns from such activities is taxable. Unfortunately, losses from lottery are not recognised under the law. But what does this mean to sports betting lovers and lottery business in Ghana?
Why tax lottery winnings?
The gaming industry continues to grow. Sports betting alone is estimated to have grown from US$70billion in 2016 to US$92billion in 2022. With the use of technology, the industry is booming and estimated to be more than US$180billion by 2030. In the 2023 budget, government has reintroduced the tax at a rate of 10 percent on winnings and 20 percent corporate tax on operators in the industry.
The inclusion of lottery or gambling income as taxable income is strongly influenced by a country’s choice of tax system. For those countries with worldwide tax systems, gambling winnings are in principle subject to tax whether they arise from windfall (occasional transactions) or from a professional gambler. When tax is imposed on gambling and lottery, the Tax Base is only on the winnings and the losses are ignored.
Losses incurred in gambling or lottery are not deductible because each gambling occasion is a separate event. Gambling or lottery losses arising on one occasion cannot be deducted against winnings derived on another occasion. These restrictions presumably reflect the administrative difficulties of verifying gambling losses. Even in the case of a professional gambler or lotto ‘staker’, losses for the year can be deducted only to the extent of gambling income or winnings from the stake.
Most countries tax lottery or Gambling income as Occasional Income (windfall), and some countries consider gambling income as taxable only if the gambler can be found to be in the business of gambling. For example, in Germany the gambling income of a professional card player is taxable as a business income, and gambling income from TV shows is taxable as other income.
Taxing lottery and gaming in Ghana since 2015
In Ghana, when the Income Tax Act, 2015 (Act 896) was passed, lottery activity was recognised as an investment activity. Since 2015, lottery taxation has gone through several changes – leading to it being repealed in 2017.
In 2015, a withholding tax of 5 percent was imposed on the winning amount under the 1st Schedule, Par. 8(1) (b) (viii). There was no exemption provided in 2015, and whatever amount won was subjected to 5 percent tax.
Then in 2016, arguments were raised that bettors can stake for several times before winning. Therefore, a threshold needed to be set – above which the winnings would be subjected to tax.
The Income Tax Amendment Act, 2016 (Act 907) amended this provision and exempted the first GH¢2,592; and any excess wining above GH¢2,592 was taxable at 5 percent.
In 2017, the National Lottery Authority (NLA) made proposals to the Ministry of Finance for the scrapping of taxes on lottery as a way of attracting more mainstream operators. The tax was then repealed.
Regulation 24 of the Income Tax Regulations, 2016 (L.I. 2244) defined winnings from lottery to include gambling, betting and any game of chance.
2023 reintroduction
The 2023 budget reintroduced this law in two parts. The first is the taxation of winnings at the rate of 10 percent. Again, there is no deduction of losses and no exemption is provided.
The amended law provides that “in the case of winnings from lottery, ten percent of the gross winnings at the end of each game”.
Since the law does not recognise previous losses, is the 10 percent of the gross winnings too high? In my view it appears so. Why was there no exemption provided as was under the 2016 law? If losses are not considered as a general practice, could those losses be relieved by taxing the income at a lower rate?
What about a professional gambler (casino, lotto forecaster, etc.), engaged in gambling business? The law in its current form treats the winnings as a final withholding tax. Does it mean one cannot engage in a business of staking bets? What about the VAT and other indirect taxes on betting?
The second part of the 2023 amendment is the treatment of Lottery operations as a special industry. In the amendment, lottery operators are subject to 20 percent of their gross gaming revenue. Gross Gaming Revenue is defined in the amendment as total amount staked or waged, less prizes or winnings paid or payable. This suggests all other operational expenses are not taken into consideration. What about various forms of TV shows and Promotional winnings?
Taxation of lottery may be at its earliest stage in Ghana following its abandonment in 2017. Now that it is back among our tax laws, the law may need further development.
The writer is a tax consultant
email: [email protected]
