Looking abroad: Some possible insight into South Africa’s forthcoming gambling tax

In the 2019 Budget Speech, the Minister of Finance announced that draft legislation pertaining to the long-awaited gambling tax would be published for public comment in 2019. We discussed this announcement in our Special Edition Budget Speech Alert of 20 February 2019. The draft legislation will possibly be published with the draft Taxation Laws Amendment Bill in the next few months, but while we wait for the release of the draft legislation, we take the opportunity to consider some of the issues that have arisen with gambling tax in foreign jurisdictions.

17 May 2019 4 min read Tax & Exchange Control Alert Article

Of particular interest is the recent judgment in London Clubs Management Ltd v Revenue and Customs Commissioners [2018] EWCA Civ 2210, a decision handed down by the United Kingdom’s Court of Appeal, Civil Division (COA). In this case, the COA was asked to pronounce on the tax treatment of “non-negotiable chips” issued by casinos (or other similar institutions) as a promotional tool, and whether the use of such chips should be used to calculate an entity’s liability for gaming duty, as referred to in the United Kingdom’s Finance Act 1997 (FA).

Gambling tax in the United Kingdom

The FA regulates gambling tax in the United Kingdom (UK). The COA indicated that the provisions of the FA apply to equal chance gaming and casino games in which the chances are equally favourable to all participants.

As stated in the COA’s judgment, in terms of s10(2) of the FA, the amount of gambling tax that is chargeable is calculated by applying specified tax rates to the “gross gaming yield” of the casino in the relevant accounting period. “Gross gaming yield” comprises the aggregate of the gaming receipts of the casino for the relevant period and the profits for the period if the institution qualifies as a banker as defined in the FA.

Section 11(10) of the FA provides that the aforementioned profit is the amount by which the value of the “money or money’s worth of the stakes staked” exceeds the “value of the prizes provided by the banker to those taking part in such gaming”.


London Clubs Management (Taxpayer) is a company that operates casinos. As a promotional tool, the Taxpayer issued selected customers with a range of means to place certain bets free of charge. The most relevant of these were non-negotiable chips. Non-negotiable chips are differentiable from cash chips as they can only be used to place bets at gaming tables and cannot be cashed in or used to pay for goods or services. If a customer places a bet with a non-negotiable chip and wins, the casino pays out the winnings in cash chips and the customer retains the non-negotiable chip. However, if the customer loses, the non-negotiable chip is retained by the casino.

At issue in this matter was the value (if any) that should be ascribed to the non-negotiable chips in terms of s11(10) of the FA once the non-negotiable chips had been staked and lost by the customer.

After the UK’s First-Tier Tribunal found in favour of the Revenue and Customs Commissioners (HMRC), the Taxpayer decided to appeal the decision to the Upper Tribunal.

On appeal, the Upper Tribunal held that the value of the stake staked was the amount that was put at risk by the player, which amount is the real amount of money or money’s worth that was risked in the game and not the notional amount represented by the face value of the non-negotiable chip. The Upper Tribunal came to the conclusion that the value of the non-negotiable chips staked is nil as these chips do not represent money deposited with the casino, could not be redeemed for goods or services and could not be assigned for value.

Judgment of the UK Court of Appeal

The COA emphasised that the words contained in s11(10) of the FA were to be construed in their “real world, practical context” and not within an artificial realm of “possible or philosophical interpretations”.

In determining the value of the stakes staked for purposes of s11(10), the COA concurred with the Upper Tribunal and found that only the real-world stakes received from players, which could be included as an actual receipt in a casino’s bookkeeping system, must be taken into account. In this regard, it was stated that, by issuing the non-negotiable chips, the casino allows the player to bet with the casino’s own money and that there is no receipt by the casino that contributes to its gross profits. Furthermore, it was found that non-negotiable chips actually constitute a contingent, non-enforceable, liability on the casino to pay out in the event that a non-negotiable chip is placed as a winning bet.

The value to be attributed to a non-negotiable chip must therefore be a “real-world (economic) value, objectively assessed, as opposed to a subjective value viewed from the perspective of the casino or the player”. This would be the value of the stake which is put at risk by a player in a game.

The mere fact that such a right [to place a bet] might subjectively be regarded by the holder of the [non-negotiable chip] as a valuable right, in the sense that it would enable that holder to play a game without putting money at risk, is not material to an objective valuation, in money or money’s worth, of the stake staked. […] On the other hand, the objective valuation of a stake would, in our view, have to have regard to the monetary value, if any, that could be obtained on an arm’s length assignment to a third party of the right to place that stake, in the same way that it would if the [non-negotiable chip] was redeemable for cash or for goods and services.

As such, the COA found in favour of the Taxpayer by concluding that the value to be attributed to a non-negotiable chip is nil. The Revenue and Customs Commissioner’s appeal was dismissed.


This UK judgment sheds light on an interesting potential issue that may be considered when drafting the proposed gambling tax legislation. One would hope that the common-sense approach followed by the COA in this matter will also be accepted by South Africa’s legislature and be catered for in the draft legislation.

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