Tax on betting: Sound, innovative tax policy or case of Caeser Pickpocketing Punters?
Article 174(1) of the 1992 Constitution of the Republic of Ghana states; “No taxation shall be imposed otherwise than by or under the authority of an Act of Parliament”.
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In essence, taxation, in simple terms, is an imposition and the imposition must be so done by or under the authority of an Act of Parliament thereby resulting in Income Tax Act, 2015 (Act 896) and its recent amendment; Income Tax (Amendment) (No.2) Act, 2023 (Act 1111).
What then is taxation in its broad sense? Both the chargeable provision —Act 896 and the machinery provision —Act 915 have not defined taxation. It is not insignificant, however, to note that what is perceived as income (assessable) has a lot to play on how taxation is defined. Ironically, the definition of income has also been evaded by statute.
Taxation is, therefore, a subject which represents an underexplored concept whose meaning remains evasive, whose boundaries are fuzzy, and whose internal structures are confusing.
Nevertheless, Black’s Law Dictionary defines taxation as “the imposition or assessment of a tax; the means by which the state obtains the revenue required for its activities”.
Mention must be made that the “the imposition or assessment of a tax” contained in Black’s Law Dictionary is charged on income and the concept of income is a determinant in what is being or will be taxed.
Tax on winnings
Consequently, when income was based on Adams Smith’s definition of income under the previous enactments, it was legally appropriate not to tax “winnings from lottery”.
So, for more than seven decades, Ghana’s bases of taxation were accustomed to Adams Smith’s concept. But per the promulgation and coming into force of the Income Tax Act, 2015 (Act 896), the definition of income rightly took Haig-Simon’s concept which encompasses gifts, capital gains, stolen money, winnings from lottery, among others.
Informed by Haig-Simon concept, subsection 1 of section 3 of Act 896 provides that; “The assessable income of a person for a year of assessment is the income of that person from any employment, business or investment” and subsection 1 of section 6 which deals with Income from Investment asserts that “The income of a person from an investment for a year of assessment is the gains and profits of that person….”.
Here, the legislature that legislated the Act meant income from any investment (including, illegal income) and the use of the conjuncture “and” is a marked departure from subsection one of section nine of the repealed Internal Revenue Act, 2000 (Act 592) which uses a disjuncture “or” in addressing what is meant by a person’s Income from an investment.
In effect, Haig-Simon’s conceptualisation of income found its reasoning into Act 896 and that makes imposition of tax on winnings from lottery sound and proper both in economic literature and in tax law.
Thus, subparagraph (iv) of paragraph (a) of subsection 2 of section 6 includes “winnings from lottery” in ascertaining gains and profits of that person from an investment.
It should be noted that subregulation one of regulation 24 of Income Tax Regulations (ITR), 2016 (LI 2244) provides for winnings from lottery to “include gaming, betting and any game of chance”.
Essentially, tax on winnings from lottery was already a taxable base during the previous regime but fairly and equitably with a specified threshold.
The rate of tax was to be applied only to the excess amount over the threshold. That is, GH¢2,952 which is GH¢5,880 in today’s tax band.
Thus, if there were any winnings from lottery in excess of GH¢2,592, the excess amount attracted a final withholding tax of 5%. This Regulations was entered into force on August 3, 2016.
So, what happened?
Given the ushering into power of a new government in January, 2017, the foregoing provision on taxation of winnings from lottery was deleted by way of Income Tax (Amendment) Act, 2017 (Act 956).
According to Act 956, “The Income Tax Act, 2015 (Act 896) referred to in this Act as the “principal enactment” is amended in section 6 by the deletion of subparagraph (iv) of paragraph (a) of subsection 2”.
As stated earlier the referred provision in Act 896 instructs a person who is ascertaining the gains and profits of a person or of another person from investment ……. to include winnings from lottery.
It is therefore economically and legally condescending to note that the said Act 956 never made attempt to equally delete Regulation 24 of ITR, 2016 (LI. 2244).
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From both a technical and tax policy view point, we still do not understand why the government per Act 956 deleted tax on winnings from lottery only to bring it back through Income Tax (Amendment) Act, 2023 (Act, 1094) with more than 100 per cent increase in the effective tax rate.
Though it is commendable that the government has rightly undone the wrong done in Act 956, the threshold should be restored so that only wins in excess of GH¢5,880 will be subject to final withholding tax of 10 per cent.
The writer is with the Department of Accounting and Finance, Bolgatanga Technical University (BTU)