South Africa’s rising gambling phenomenon: Are sin taxes on gambling justifiable?

The gambling sector has demonstrated extraordinary expansion in the past year. According to the National Gambling Board, South Africans spent R1.1 trillion in the local gambling industry between April 2023 and March 2024, with gross gambling revenue rising 25.7% to R59.3 billion. Sports betting leads this growth contributing two-thirds of total revenue¹. This sector saw a surge post the COVID-19 lockdowns, with online platforms remaining popular due to their accessibility and reduced social stigma compared to traditional casinos.

The relationship between gambling and economic hardship has become increasingly apparent. South Africa has one of the highest unemployment levels, with Statistics South Africa reporting a 32.1% unemployment rate for the period of July to September 2024². The youth are significantly more affected by unemployment, with an alarming 45.5% of people aged 15-34 being unemployed in the same period. With these factors in play, the high engagement of young people in online betting becomes more understandable.

Current and proposed tax framework 

While gambling operators are already taxed on their revenue, individuals who win large sums remain relatively exempt from tax provided that the winnings are from authorised gambling in the country. Licensed gambling operators pay taxes on gross gambling revenue, contributing to provincial, and indirectly, national budgets. Professional gamblers and highly frequent gamblers are also taxed on the income they earn with the ability to offset their losses. However, occasional gambling winnings for individuals are exempt from income tax as they are classified as windfall gains.

In the 2011 Budget Speech, the then Finance Minister, Pravin Gordhan, proposed implementing a 15% withholding tax on gambling winnings exceeding R25 000, effective from April 2012. However, this proposal has yet to be implemented due to opposition from the industry as well as administrative complexities. With the gambling sector directly employing nearly 35 000 people³, and supporting numerous indirect jobs. Taxing individual winnings instead of increasing taxes on gambling operators would avoid the risk of job losses (exacerbating an already significant unemployment issue) and reduced investments in the sector.

Is the taxation of individuals justifiable?

The primary motivation to tax individuals’ winnings is to curb excessive gambling which has extensive social costs for addiction treatment. It has been a matter of frequent discussion that the revenue generated from implementing sin taxes would not adequately fund addiction treatment programmes and responsible gaming initiatives. The legislation proposed a winnings-only tax which may meet some resistance from gamblers as professional and frequent gamblers are allowed to offset losses incurred on gambling activities. The justification is that these losses are incurred in the production of income. It is therefore worth considering whether casual gamblers should be allowed to offset their losses as there is evidence that at least 70%⁴ of them use the winnings to supplement their income as opposed to engaging in the activity for leisure or investment purposes.

However, as the motive for this implementation is to curb excessive gambling, allowing losses would have the opposite effect. Individuals may be incentivised to continue gambling in attempts to offset losses with winnings for tax purposes. There are already challenges in tracking winnings, specifically from offshore gambling organisations. Adding the tracking of losses as well would put too much pressure on the capabilities of the South African Revenue Service (SARS) workforce.

Conclusion

The current economic climate, characterised by high unemployment and cost of living, calls for a balance between revenue generation and social protection. A withholding tax on individual winnings may provide this balance if carefully structured. The minimum value for taxation should be reconsidered taking into account inflation over the last 13 years since the first proposal. This will ensure that those gambling to supplement their low income, are kept out of this tax net and do not turn to illegal gambling activities which are completely out of SARS’ grasp. 

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¹ Gambling Revenue and Taxes in SA - Codera Analytics
² Statistics South Africa on official unemployment rate in third quarter of 2024 | South African Government
³ https://www.thedtic.gov.za/wp-content/uploads/NGB-AR2024.pdf (page 38)
⁴ Would a gambling sin tax have you rethinking your bets? - Moneyweb