In countries that struggle to generate revenue for even basic amenities like electricity, clean water and education– like in West Africa and the sub-Saharan region – taxation from gambling, offline as well as online, is a good way to generate revenue and support the economy.
That is possibly the reasoning behind the World Bank proposal to the Federal Government of Nigeria asking them to charge a tax on gambling and betting stakes. The tax would cover local offline as well as online gambling and betting, thereby ensuring greater revenue generation.
Increasing Revenue through an Ad Valorem Tax: The World Bank Proposal
The proposal from the World Bank states that the tax would be charged ad valorem, which in this case means ‘in proportion to the value of the bet placed’ and would be 8 percent of the bet value.
The proposal was put forward at the virtual meeting of the stakeholder engagement and consultation forum for FY2023 by Rajul Awasthi, the Senior Public Specialist and Co-lead of the Domestic Resource Mobilization Global Solutions Group at the World Bank.
The Potential Revenue that the 8 Percent Gambling Tax would Generate for Nigeria
The proposal that an 8% tax on online gambling and betting to be implemented by the federal government will open another channel to create substantial revenue, to the tune of N114 billion by 2023.
Additionally, the World Bank executive highlighted that Nigeria boasts of being a country with some of the minimum rates of excise tax compilation in Sub Saharan Africa. Mathematician and Data Analyst at NoDepositFriend, Dr Pauline Lemar shed light on this pivotal tax proposal:
‘There’s always an element of hostility from our partners when it comes to such tax updates. However, the reality is, resisting them is futile, because if they need to be implemented, they will. Such an excise will limit revenue and worse off, increase payments for gamblers in the long run. Not only that, the rate can potentially increase to 12% by 2024, resulting in revenues to the tune of N164 billion.’
The Need for an Ad Valorem Gambling Tax in Nigeria
The need for an ad valorem tax in Nigeria, according to Awasthi, was simple – the country was generous to its citizens when it came to tax rates. It has, according to World Bank data shared by Awasthi, among the least numbers when it came to excise tax collection in the whole region.
Awasthi compared the tax situation in Nigeria to that in other African countries like Ghana, Cameroon, Togo, Ethiopia and even Gambia. These countries levied a gambling tax that ranged from a modest low of 5 percent to a massive high of 40 percent. The tax was imposed especially on winnings, which meant the player was spared the headache of spending large amounts just on placing a bet, but having to fork out a portion of his earnings once he won.
This was the basis for his proposal. Not only did he propose introduction of the gambling tax; he also sought to have the government hike up taxes on products like tobacco, cigarettes and other nicotine products, spirits and wines and non-alcoholic beverage products.
The increase in tariff proposed for these products ranged from 10% to 30%. For the beverages the proposal was to increase the value per liter.
Taxation and a Healthy Business Environment: The Need for Balance
Of course an increase in revenue cannot come at the cost of the citizens’ peace of mind and living comfort.
The additional recommendation of the experts during the meeting, therefore, was for the government to ensure a healthy balance between imposing the additional tax and ensuring businesses did not have to face the prospect of surviving through a rough environment.
This was the point that the Tax Partner at KPMG Nigeria, Ajibola Olomola, who was part of the consultation raised. He spoke of the need for the government to balance out the taxation to ensure an even playing field for small and mid-sized business owners or those who are already treading a difficult path.
Other Perspectives Raised in the Meeting
There were other perspectives that found their way to the table during the consultation. In his presentation, Nnamdi Obinwa, a KPMG manager spoke of the need for the Federal Government of Nigeria to take a step back and prioritize investment in renewable energy and other core areas.
The focus so far for Nigeria has been on the oil and natural gas sector and while that was good, it would be unwise to not look at renewable energy, given that is where the world is heading to now. He spoke of the need to provide incentives to the people to harness and use renewable energy solutions
Another area he touched upon was transparency in tax reporting. He also mentioned about the need for tax exemption for renewable energy equipment. This would be helpful in enabling the various organizations in the field to manage their cash flow efficiently.
By ensuring exemption of VAT for those who provided power services based on renewable energy, the government would effectively be able to bring down the overall cost for all, including, most importantly, the customer.