Sunwest International (Pty) Ltd v The Western Cape Gambling and Racing Board (The Eastern Cape Gambling Board Amicus Curiae)
| Jurisdiction | South Africa |
| Judge | NC Erasmus J, NP Mabindla-Boqwana J and TD Papier J |
| Judgment Date | 29 April 2020 |
| Docket Number | 2203/2018 |
| Hearing Date | 29 April 2020 |
| Court | Western Cape Division, Cape Town |
Erasmus J, Mabindla-Boqwana J and Papier J
THE COURT:
Introduction and Background:
The applicants sought a declaratory order that "Freeplay" credits, used to bet on slot machines at the applicants' casinos, do not constitute part of the "drop" [1] for purposes of the computation of adjusted gross revenue ("AGR"), in terms of section 64 of the Western Cape Gambling and Racing Act 4 of 1996 ("the Act"), read with Schedule Ill, and thus that such Freeplay credits do not form part of the taxable revenue. They consequently seek an order for the refund of the amounts overpaid by them, from the Provincial Revenue Fund; alternatively that the first respondent off-set the overpayments against the applicants' future liability to pay gambling tax in terms of section 64 of the Act read with Schedule Ill.
The applicants are subsidiaries of Sun International (South Africa) Limited ("Sun International"), one of South Africa's largest operators of casinos. They are holders of casino operator licences, issued by the first respondent, and pay gambling taxes and levies to the first respondent, which is then paid into the Provincial Revenue Fund in terms of section 64 (3) of the Act. The gambling tax is calculated as a percentage of the applicants' taxable revenue and AGR. The issue before us concerns the treatment of Freeplay for the purposes of calculating taxable revenue and whether it forms part of the AGR.
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The Facts:
The facts are largely common cause. Freeplay is non-cashable credit that is allocated to a casino player's card, by the applicants, as a reward for loyalty. The credit is available for the player to use at slot machines at applicants' casinos. It is denominated in rand value. It is, however, not redeemable for cash. Players are able to appreciate the value proposition associated with Freeplay and entertain themselves without it impacting on their own financial resources.
During 2014, Sun International introduced a system called "BALLY" in its casinos across the country. The system is able to differentiate between credits paid for by the player from his or her own funds, and Freeplay credits generated by the casino crediting its Most Valued Guests' player accounts as part of its loyalty programme. Subsequent to the introduction of this system, Sun International requested confirmation from various Casino Boards around the country that it could implement the method of calculating adjusted gross revenue by excluding the "non-cashable" play portion which is funded by Sun International and/or its subsidiaries (including the applicants).
Various exchanges ensued between the applicants, their attorneys and officials of the first respondents. The views of the treasury of the Western Cape, on behalf of the second respondent, were solicited. The views of both respondents are that Freeplay falls within the definition of AGR and is accordingly taxable. A decision to this effect by the HOD: Compliance for the first respondent was conveyed to the applicants' attorneys, who
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lodged an appeal with the first respondent's Board. The Board suggested that an application seeking declaratory relief should be brought.
The applicant also litigated in the Northern Cape, where the full bench, in the unreported decision of Teemane t/a Flamingo Casino v The Chairperson of the Northern Cape Gambling Board [2] , held that:
"It is clear from the common cause facts that Freeplay cannot form part of 'gross receipts' for the simple reason that the applicant does not receive anything when a Freeplay credit is used in its Casino. I believe Mr Cockrell is correct in his submission that the purpose of Regulation 2 is to impose a levy on the revenue that a licensee receives. It is common cause that no revenue results from the use of a Freeplay credit in the applicant's casino. Therefore, I find that the applicant is correct in its submissions on the plain - language interpretation of Regulation 2."
In the further, unreported, decision of Sun International (South Africa) Limited v The Chairperson of the North West Gambling Review Tribunal and Others [3] , the North West High Court was also required to determine whether Freeplay was included in the
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definition of "revenue" for purposes of calculating liability on the part of a casino. Gutta J, in her judgment, decided that:
"... Freeplay credits do not form part of gross gaming revenue as the purpose of Regulation 73(1) is to impose a levy on the revenue that a licensee receives and [the casino] receives no revenue from the use of Freeplay credits. Accordingly, on the plain language interpretation, and within the framework of the Constitution, I am of the view that the decision made by the Board and the Tribunal was materially influenced by an error of law ..."
While this court is not bound by any of these judgments, they are nevertheless persuasive, insofar as they may be relevant to the facts of the matter before us.
The Eastern Cape Board was admitted as amicus curiae. The Eastern Cape Gambling and Betting Act 5 of 1997 ("the EC Act") has provisions almost identical to those of the Act which is the subject of these proceedings. Southern Sun has advanced similar views, as they have in this matter, to the EC Board. The EC Board has not made a final decision with regard to Freeplay, pending the outcome of this Court's decision on the matter. They believe, however, that Freeplay should be included in the definition of drop.
Legislative framework:
In terms of section 64 (1) of the Act, "... there shall be paid to the Board [the first respondent] gambling and betting taxes and levies by the holders of licences as provided for in Schedules Ill and IV." [Own emphasis.]
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Section 64 (3) requires the first respondent to pay such taxes into the Provincial Revenue Fund within the periods stipulated in Schedules Ill and IV, or as prescribed.
In terms of Schedule Ill, Part B, the holder of a casino operator licence shall pay gambling tax on its "taxable revenue". "Taxable revenue" is defined in Schedule Ill, Part A as "adjusted gross revenue less admissible deductions as determined under this Act". The relevant portions of the definition of "adjusted gross revenue" are (d) and (e), which state the following:
in relation to slot machines, other than those contemplated in subparagraphs (e) and (f) below operated by a licence holder in the Province, the drop, less fills to the machine and winnings paid out; provided that the initial hopper load shall not constitute a fill and shall not affect the calculation of adjusted gross revenue;
in relation to slot machines operated by a licence holder in the Province which are linked via a wide-area progressive system, the drop, less fills to the machine, less any contributions made by the licence holder which are payable in consequence of such wide-area progressive system in respect of such slot machines during the tax period, and less any winnings paid out which are not recoverable from the central fund in terms of the wide-area progressive system; provided that the initial hopper load shall not constitute a fill and shall not affect the calculation of adjusted gross revenue; provided further that where any surplus amount is distributed from the central fund to
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a licence holder or where any licence holder withdraws from a wide-area progressive system and in consequence of such distribution or withdrawal recovers or recoups during any tax period any contribution previously deducted under this subparagraph, such contribution so recovered or recouped shall be included in the licence holder's adjusted gross revenue in the tax period in which the contribution is recovered or recouped, ..." [Own emphasis.]
"Drop" means -
in relation to table games, other than those referred to in subparagraph (b) of the definition of "adjusted gross revenue", the total amount of money, chips and tokens contained in the drop boxes, and
in relation to slot machines, the total amount of money and tokens removed from the drop box, or for cash-less slot machines, the amount deducted from players' slot accounts as a result of slot machine play." [Own emphasis.]
The applicants have slot machines that accord with paragraphs (d) and (e) of the definition of AGR. Certain machines are linked to a wide-area progressive...
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