Western Cape Gambling and Racing Board and another v Sunwest International (Pty) Ltd and others
| Jurisdiction | http://justis.com/jurisdiction/166,South Africa |
| Judge | Dambuza ADP, Mocumie JA, Plasket JA, Goosen AJA and Mali AJA |
| Judgment Date | 04 September 2023 |
| Citation | 2023 JDR 3310 (SCA) |
| Hearing Date | 22 November 2022 |
| Docket Number | 1330/2021 |
| Court | Supreme Court of Appeal |
Dambuza ADP (Mocumie JA, Plasket JA, Goosen AJA and Mali AJA):
Introduction
The issue for determination in this appeal is whether ‘freeplay credits’ (freeplay) used to bet in slot machines at the first and second respondents’ casinos attract gambling taxes and levies payable to the first appellant, the Western Cape Gambling and Racing Board (the WC Board). The Full Court of the Western Cape Division of the High Court (the high
2023 JDR 3310 p4
Dambuza ADP (Mocumie JA, Plasket JA, Goosen AJA and Mali AJA)
court) held that freeplay does not form part of taxable revenue under the Western Cape Gambling and Racing Act 4 of 1996 (the Act). The WC Board together with the second appellant, the Provincial Minister of Finance, Western Cape (MEC) appeal against the judgment of the high court, leave having been granted by that court.
The Eastern Cape Gambling Board (the EC Board) was admitted as amicus curiae in the high court proceedings. It had also been confronted with similar issues relating to freeplay in the Eastern Cape High Court. In those court proceedings the applicants were Emfuleni Resorts t/a Boardwalk Casino and Entertainment World and Transkei Sun International t/a Wild Coast Sun, which are subsidiaries of Sun International (South Africa) (EC casinos). Having been admitted as amicus curiae in this appeal, apart from aligning itself with the contentions made by the WC Board, the EC Board also brought an application for the introduction of further evidence in the appeal.
The facts
The first and second respondents, Sunwest International, trading as Grandwest Casino & Entertainment World (Grandwest) and Worcester Casino, trading as Golden Valley Casino and Lodge (Golden Valley) are also subsidiaries of Sun International. They are holders of casino operator licences granted in terms of s 27(a) of the Act. In the high court they obtained an order declaring that freeplay credits does not constitute part of the ‘drop’ which is a component in the formula used for computation of adjusted gross revenue when determining taxable revenue under s 64, read with Schedule III of the Act. That section regulates payment of gambling and betting taxes and levies
2023 JDR 3310 p5
Dambuza ADP (Mocumie JA, Plasket JA, Goosen AJA and Mali AJA)
to the WC Board by holders of casino operator licenses in the Western Cape Province. The respondents were granted consequential relief requiring the MEC to set-off the amounts already paid by them against their future liability for gambling tax.
In gambling parlance, freeplay refers to special non-cashable credits loaded by the respondents as casino operators onto card accounts that a group of gamblers known as the ‘most valued customers’ use when playing at the casino slot machines. [1] These customers do not pay for freeplay. It is a gift or reward given by the casinos to their most frequent customers.
Freeplay is a cash equivalent denominated in rand value, and the amount given to a customer is based on the extent of his or her past gambling activities and conduct. The customer downloads the credits onto a slot machine within a specified time, at a specified casino, and then places bets. As the customer plays, the credits are deducted from his or her slot account. The casino does not receive any revenue from a game played with freeplay. But the winnings accrue to the player. Freeplay cannot be redeemed for cash.
A dispute arose between the WC Board and the casinos as to whether freeplay is part of the casinos’ taxable revenue for purposes of assessing gambling tax payable by casino licence holders. The context is this: under s 64(1) of the Act casino licence holders are liable for gambling and betting taxes and levies which are computed as provided in Schedule III and IV of the
2023 JDR 3310 p6
Dambuza ADP (Mocumie JA, Plasket JA, Goosen AJA and Mali AJA)
Act. In terms of s 64(5) of the Act, the provisions of Schedules III and IV, which include the assessment of gambling tax payable by licence holders, are administered by the Chief Executive Officer on behalf of the WC Board.
The dispute arose after the Sun International management arm, Sun International Management Limited (SIML) introduced a software system known as BALLY to its subsidiaries nationally. BALLY is able to distinguish between freeplay and credits paid for in cash by a player. This allowed for SIML to exclude the value of freeplay when calculating gambling taxes in provinces where Sun International operates casinos. SIML sought approval from the WC Board for the exclusion of non-cashable bets funded by the casinos.
The exchange between the parties culminated in a letter dated 9 March 2017 wherein the WC Board expressed the view that freeplay is part of the casinos’ ‘adjusted gross revenue’ and is therefore part of their taxable revenue. The casinos considered this view to be a decision of the Board on the issue and launched an appeal against it as provided in s 13(4) of the Act. [2] The Board protested that it had merely conveyed its view on the dispute rather than making a decision or determination on the treatment of freeplay. The parties then agreed to approach the high court for a declaratory order on the interpretation of the relevant taxation provisions of the Act.
2023 JDR 3310 p7
Dambuza ADP (Mocumie JA, Plasket JA, Goosen AJA and Mali AJA)
In the high court the casinos contended that on a proper interpretation of s 64, freeplay is excluded from the definition of the ‘drop’ for purposes of computation of gambling tax. They contended that the purpose for imposition of gambling tax is to raise public funds from revenue received by licence holders in proportion to the financial benefit enjoyed by them. They posited that the tax is levied on the premise that the licence holder has acquired revenue from gambling, and is therefore ‘better off’ financially. However, they do not derive any revenue or quid pro quo from a game played with free play. Instead, whilst their financial position remains the same if a customer loses a freeplay game, a win on a freeplay game results in financial loss to the casino. Consequently, including freeplay in the taxable revenue constituted arbitrary deprivation of property in breach of s 25 (1) of the Constitution of the Republic of South Africa (the Constitution), because it requires a licence holder to pay an increased gambling tax in circumstances where its financial position has not improved. Constitutional imperatives therefore militate against taxation of freeplay, so it was argued.
The argument went further: freeplay results in increased gross gaming revenue (GGR) over time because it attracts more players to casinos, and once freeplay credits are used up the players use their own resources to continue playing. Consequently, the use of freeplay results in increased gambling tax liability for gambling licence holders.
The WC Board’s argument centred on the text of s 64 read with the Schedules, and the purpose of the...
To continue reading
Request your trial