Sunwest International (Pty) Ltd and Another v Western Cape Gambling and Racing Board and Another

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Citation: 2021 (2) SA 607 (WCC)

Sunwest International (Pty) Ltd and Another v Western Cape Gambling and Racing Board and Another
2021 (2) SA 607 (WCC)

2021 (2) SA p607

Citation	2021 (2) SA 607 (WCC)
Case No	2203/2018
Court	Western Cape Division, Cape Town
Judge	Erasmus J, Mabindla-Boqwana J and Papier J
Heard	April 29, 2020
Judgment	April 29, 2020
Counsel	A Cockrell SC (with N Ferreira) for the appellants.; JA Newdigate SC (with R Matsala) for the first respondent.; RT Williams SC (with H Cassim) for the second respondent.; I Jamie SC (with HJ de Waal SC) for the amicus curiae.

Flynote : Sleutelwoorde

Gaming and wagering — Revenue — Gambling tax — Taxable income — What constitutes — Non-cashable credits issued by casino to player's slot-machine card as part of loyalty programme — Only actual revenue taxable; credits revenue neutral and not taxable — Western Cape Gambling and Racing Act 4 of 1996, s 64.

Headnote : Kopnota

Sun International (Pty) Ltd, a casino group, had requested confirmation from various casino boards that it could implement a method of calculating adjusted gross revenue (AGR) by excluding non-cashable credits (the Freeplay credits). These were allocated to a casino player's card by the applicants, as a reward for loyalty and were available for the player to use at slot machines at applicant's casinos; they were denominated in rand value but not redeemable for cash.

However, the first respondent (the casino board), along with second respondent (the provincial treasurer), took the view Freeplay credits were taxable. Turning to the court, Sun International (Pty) Ltd sought, amongst other relief, a declaratory order that Freeplay credits did not constitute part of the 'drop' for purposes of the computation of AGR in terms of s 64 of the Western Cape Gambling and Racing Act 4 of 1996 (the Act) read with sch III, and thus that such Freeplay credits did not form part of the taxable revenue.

The Act defines 'drop' as 'in relation to . . . cash-less slot machines, the amount deducted from players' slot accounts as a result of slot machine play'. At issue was the meaning of 'drop', more particularly whether the words 'amount deducted from players' slot accounts' should be interpreted to mean 'actual revenue'.

Held

The applicants did not receive any revenue from games played using Freeplay credits. It would be irrational to require the operator of a licence to pay tax on a revenue neutral position. The imposition of tax should not be arbitrary; an irrational requirement would amount to the 'arbitrary' deprivation of property as contemplated in s 25 of the Constitution. (See [25] and [28] – [29].)

The word 'amount' must be given a more sensible and businesslike interpretation; it was not sensible for it to be read to include Freeplay credits. The meaning of 'amount' should sensibly be interpreted to mean 'actual revenue'. The declaratory relief would accordingly be granted. (See [34].)

Cases cited

Southern Africa

Tshwane City v Blair Atholl Homeowners Association 2019 (3) SA 398 (SCA) (2019] 1 All SA 291; [2018] ZASCA 176): dictum in para [63] applied

Commissioner for Inland Revenue v First National Industrial Bank Ltd 1990 (3) SA 641 (A): dictum at 647C – D applied

2021 (2) SA p608

Cool Ideas 1186 CC v Hubbard and Another 2014 (4) SA 474 (CC) (2014 (8) BCLR 869; [2014] ZACC 16): dictum in para [28] applied

Estate Reynolds v CIR 1937 AD 57: dictum at 70 applied

Farrar's Estate v CIR 1926 TPD 501: applied

First National Bank of SA Ltd t/a Wesbank v Commissioner South African Revenue Service and Another; First National Bank of SA Limited t/a Wesbank v Minister of Finance 2002 (4) SA 768 (CC) (2002 (7) BCLR 702; [2002] ZACC 5): dictum in para [100] applied

Glen Anil Development Corporation Ltd v Secretary for Inland Revenue 1975 (4) SA 715 (A): dictum at 727F – G applied

Investigating Directorate: Serious Economic Offences and Others v Hyundai Motor Distributors (Pty) Ltd and Others: In re Hyundai Motor Distributors (Pty) Ltd and Others v Smit NO and Others 2001 (1) SA 545 (CC) (2000 (2) SACR 349; 2000 (10) BCLR 1079; [2000] ZACC 12): applied

M v Commissioner of Taxes (SR) 21 SATC 16: applied

Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) ([2012] 2 All SA 262; [2012] ZASCA 13): applied

Sun Intemational (South Africa) Ltd v Chairperson of the North West Gambling Review Tribunal and Others [2018] ZANWHC 62: dictum in para [30] applied

Teemane (Pty) Ltd t/a Flamingo Casino v Chairperson of the Northern Cape Gambling Board NC 2023/2016: dictum in para [22] applied

Venter v R 1907 TS 910: applied.

England

Cape Brandy Syndicate v Inland Revenue Commissioners [1921] 1 KB 64: dictum at 71 applied

Revenue and Customs Commissioners (HMRC) v London Clubs Management Ltd [2018] EWCA Civ 2210: compared.

United States

First Gold Inc, Mineral Palace LP and Four Aces Gaming LLC v South Dakota Department of Revenue and Regulation 2014 SD 91: referred to

Pueblo of Isleta v Michelle Lujan Grisham Civ No 17-654 KGI KK: referred to.

Legislation cited

The Western Cape Gambling and Racing Act 4 of 1996, s 64.

Case Information

A Cockrell SC (with N Ferreira) for the appellants.

JA Newdigate SC (with R Matsala) for the first respondent.

RT Williams SC (with H Cassim) for the second respondent.

I Jamie SC (with HJ de Waal SC) for the amicus curiae.

An application for a declaratory order.

Order

1.

It is declared that —

1.1

Freeplay credits used to bet on slot machines at the applicants' casinos do not constitute part of the 'drop' for purposes of the computation of adjusted gross revenue in terms of s 64 of the Western Cape Gambling and Racing Act 4 of 1996 (the Act) read with sch III.

2021 (2) SA p609

1.2

Freeplay credits accordingly do not form part of taxable revenue in terms of s 64 of the Act read with sch III.

2.

The first respondent is to offset against the applicants' future liability to pay gambling tax in terms of s 64 of the Act read with sch III such amount as may be agreed between the parties or proved by the applicants.

3.

Each party is to pay its own costs.

Judgment

The court:

Introduction and background

[1] 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 s 64 of the Western Cape Gambling and Racing Act 4 of 1996 (the Act) read with sch III, 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 offset the overpayments against the applicants' future liability to pay gambling tax in terms of s 64 of the Act read with sch III.

[2] The applicants are subsidiaries of Sun International (South Africa) Ltd (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 are then paid into the Provincial Revenue Fund in terms of s 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.

The facts

[3] 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.

[4] 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

2021 (2) SA p610

The Court

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).

[5] 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 lodged an appeal with the first respondent's board. The board suggested that an application seeking declaratory relief should be brought.

[6] The applicants also litigated in the Northern Cape, where the full bench, in the unreported decision of Teemane t/a Flamingo Casino v 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...