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A Taxman's View Of Cybergambling

19 November 1997

In the USA, we tend to see a highly emotive set of arguments on the issue of Nambling. It's "the kid's will bet the family fortune on Dad's credit card" or other such highly emotive and outrageous statements. It has been interesting to compare the ill-informed and badly researched approach of the NAAG's with the cooler and largely unemotional in-depth and studious approach taken by our cousins down under in Australia.

At the Australian equivalent of the IRS, there are a number of good papers on the whole issue of on-line commerce. There is a lot there and if you have a strong interest in the whole issue, you can go visit the Aussie Taxman's site.

The extract below is from a contributing consultants report from Latrobe University [Melbourne, Australia], "Electronic Commerce and the Australian Taxation System: An exploratory study of six industries." by Colin L Richardson & Peter B White. You will find the consultants reports at the Aussie Taxman's link above.

Here is at least one cool and collected view of what the implications of Nambling on the tax base.

Just one note, in 9.1 the authors are wrong where they say that "Presently it is illegal for a gambling service provider to offer any on line betting in Australia". Already, the West Australian TAB (OTB) and the New South Wales TAB (OTB) offer on-line betting as does the Centerbet Bookmaking operation. Lottery tickets and Art Unions are being sold over the Net by agents and direct in some cases. Given that this report is dated August 8th 1997, I can only conclude that the authors have confused cybercasinos and some forms of gambling which are currently not able to be sold under existing legislation in some states with all forms of gambling. Alternatively, they may have relied on earlier information they quote in their references, in particular the ACOSS report of early 1997.

9. Case Study

The Gambling Industry in Australia handles over $61 billion of stake money annually, a figure that is growing by 30 per cent per annum.

Australia is a nation of gamblers, risking $587 per person in 1995 compared with $370 in Hong Kong and $170 in the United States.

Gambling is susceptible to fraud, criminal influence and money laundering, so within Australia it is closely regulated (and heavily taxed) by the State and Territory Governments who have this responsibility under the Constitution. Where telecommunications issues are involved, it should be noted that telecommunications regulation, however, is a Federal Government responsibility and, under Section 109 of the Constitution, its laws will prevail over any inconsistent State law.

9.1 Electronic Commerce

Presently it is illegal for a gambling service provider (GSP) to offer any form of online betting in Australia. OMP interviewed the Victorian regulator who also chairs the national Working Party on Interactive Home Gaming. Mr. Brian Farrell provided a copy of his working party's submission to an Australian Broadcasting Authority investigation. It notes that "A meeting of State and Territory Gaming Ministers in Melbourne on 31 January 1996, after considering the working party's findings, determined to proceed towards the development of an agreement between Federal/State/Territory Governments to provide a uniform approach to the regulation of telecommunications based gambling."

Mr. Farrell also said that the next meeting of Commonwealth, State and Territory Gaming Ministers on 23 May 1997 is likely to make some important decisions concerning the future of electronic gambling in Australia. When online gambling is legalised it could become an important sector of broad electronic commerce, especially when delivered via interactive television.

An Arthur D Little report to the Broadband Services Expert Group forecast that 100 per cent of lottery products and 40 per cent of totalisator betting will migrate, making home gambling second only to home shopping as a key profit area, and could account for $16 billion of the gambling handle by 1999.We doubt that this is achievable and, in any case, believe that Web commerce will account for a minor share of broad electronic commerce in the Gambling Industry, at least until large flat-screen WebTV home entertainment centres receiving digital television signals become common during the first decade after the year 2000.

OMP's interviewees stressed the important social dimensions and location-based nature of most gambling activities in Australia. An ABS survey of Australians' willingness to use television or computer for accessing online services showed that only 5.3 per cent would choose to gamble from home, compared with over 30 per cent who were interested in home banking . Also, the fourth Victorian Casino & Gaming Authority survey of community gambling patterns found that the main reason given for attending electronic gaming machine venues is "the social experience".

Finally, the typical Internet demographic profile also is poorly matched with the socio-economic status of those contributing most to Australia's gambling handle, it was pointed out. Interviewees felt that, until cheap and simple WebTV devices become as common in Australian households as radios or whitegoods, gamblers will prefer the conventional outlets.

9.2 Overseas Trends

On the World Wide Web there are presently more than 60 racecourse sites, 300 casino sites, up to 200 bingo/keno/lotto sites, and a dozen virtual casinos, operating mainly in the Caribbean . According to Mr. Farrell, virtual casinos, Internet poker machines and similar Websites are not attracting punters in sufficient numbers to ensure profitability. This is due mainly to the fact that gamblers, while knowing that odds are pre-adjusted to guarantee a return to the house, can never be certain that the virtual games are not also being rigged after all bets have been laid. The proprietors of virtual casinos have stated they would welcome integrity and probity regulation by governments other than those where their Webservers are located.

There are no such problems with attracting punters to bet on the outcomes of horse racing and other real-life sporting events that are broadcast or, in the future, Webcast. Bettors' perceptions are that some trustworthy authority is always there in the background, guaranteeing the fairness of sporting contests.

9.3 Taxation Implications

The ABS estimates that gambling taxes and transfers of funds to (State and Territory) government bodies totaled $1.7 billion during 1994-95. Interviewees pointed out that sales tax is not currently applicable to gaming products and that company tax on the profits of GSPs was the only Federal tax paid by the Gambling Industry, although the growing input to State and Territory tax income makes this an in important issue for those taxing authorities. This situation may change once Federal broadcasting and telecommunications regulators negotiate a uniform national approach to online gambling with State and Territory gaming regulators."

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