A top think tank in Sri Lanka is calling for the government to completely withdraw and redraft the current version of the Gambling Regulatory Authority bill, published in May of this year.
Expert Sudaraka Ariyaratne, at the Advocata Institute, based in Colombo, notes that the redrafting of the proposed legislation, and establishment of a gaming regulator in the nation is ‘of paramount importance, particularly with the impending opening of the casino at the City of Dreams integrated resort’. CoD Colombo’s casino has been slated to open in early August.
But while haste is needed in setting up the regulatory body, this ‘should not be an excuse to pass a proxy law that gives the Ministry of Finance unchecked power in the regulation of the gaming industry’.
The group furthers that ‘not only would such a regulatory body be ineffective at oversight, but it would be vulnerable to influence, corruption, and malpractice’.
Gambling regulator seen as not having enough power
As mentioned above, the think tank opines that the Gambling Regulatory Authority would not be given enough rule-making powers and that it should be ‘free from binding directives and any other forms of influence by the Minister of Finance or any other government authority in its daily operations’.
This starts with the nomination process for the members of the regulatory body, but also includes key elements such as where the Gambling Regulatory Authority (GRA) gets its funding from.
Advocata notes that the draft bill only allows the GRA ‘to levy service fees on the operators, and the licensing fees that it would collect are to be forwarded to the Treasury’, meaning ‘its financial fortunes are mostly tied to how much the government prioritizes gaming regulation in its budgetary allocations’.
Online
‘The bill does not go far enough in addressing major concerns related to online gambling in Sri Lanka’. While the bill does require that ‘all developers, distributors, and operators of gambling software, operators of offshore gambling activities, as well as junket operators obtain separate licenses to conduct their gambling-related business activities’.
Major concerns tied to the online segment are the potential losses in tax revenues to overseas operated online gambling platforms, and an increase in possible addiction.
Revenue collection
Sri Lanka has historically suffered from being unable to properly collect gambling tax. The analyst at Advocata highlights that ‘the Inland Revenue Department of Sri Lanka is not adequately equipped to collect revenues from the gaming industry’.
The group notes that ‘even the taxes that are due on the self-reported revenues of casinos are not settled in a timely manner by the existing gaming operators’, furthering that the draft bill ‘fails to outline the specific powers held by the Gambling Regulatory Authority to effectively aid in the collection of revenues from the industry’ by the body.
One interesting issue the analyst highlights is how the Inland Revenue Department would collect revenues from the operation of ‘two separate casinos at the same building by the same operator, to cater to international and local patrons separately’- questioning whether this would fall under a single license for two separate casinos.
Particularly interesting shortcomings
The GRA, under the proposed bill, doesn’t have the power to ‘impose limits on the number of operators’, and therefore ‘regulate competition and market size’.
Similarly, there is a ‘lack of provisions in the bill for tying capacity limits to the licenses issued, on the number of tables and machines that each gaming establishment is authorized to have’, an issue that could particularly become prominent in the event of mergers.
Given the highly public collapse of Macau’s junket industry, experts are also concerned about exactly how these operations are managed.
They note in particular how the bill specifies that any gambling-related transaction is to be made at a ‘main cash desk set up by the gambling operator in currency, debit or credit’. But ‘the bill is not clear as to whether payments made to junket operators also fall under this provision, and if not, what the provisions for tracing such revenues are’.
Recommendations
Starting with junkets, Advocata recommends that all junket operators be required to hold a bank account registered in Sri Lanka, ‘which is used for all transactions related to the junket operator’s activities related to gambling operations’ in the country.
It also suggests that the GRA be authorized to levy entry fees on patrons and be allowed to determine the ‘optimal number of operators to be awarded licenses in the casino, betting, and lottery categories’.
The GRA should also devise a regulatory framework for the ‘tracing of revenues earned by gaming operators’ and that ‘all gaming operators should be taxed based on their gross gaming revenues, and not on their profits’.
The bill should entrust the GRA to design a ‘separate set of rules aimed uniquely at countering the negative externalities of online gambling, including the potential regulation of online gambling platforms operated from overseas’.
Furthermore, all employees hired by a licensed gaming operator ‘should be required to hold a license’ issued by the GRA.
‘All operators holding a gaming license should be required to abide by the disclosure and governance guidelines of the Colombo Stock Exchange,’ opines the analyst.
The overall recommendations include many more points but do highlight numerous potential pitfalls which could have a lasting impact if not defined from the get-go.
