The Western Cape Gambling and Racing Board and Another v Sunwest International (Pty) Ltd t/a Grandwest Casino & Entertainment World and Another

The first and second respondents, Sunwest International (trading as Grandwest Casino & Entertainment World) and Worcester Casino (trading as Golden Valley Casino & Lodge), are casino operator licence holders and subsidiaries of Sun International. The casinos issued 'freeplay credits' to their most valued customers as gifts or rewards based on past gambling activities. Freeplay credits are non-cashable credits loaded onto card accounts that customers use when playing slot machines. Customers do not pay for freeplay; it is denominated in rand value and awarded based on the extent of past gambling conduct. The customer downloads the credits onto a slot machine within a specified time and places bets. As the customer plays, the credits are deducted from the slot account. The casino does not receive any revenue from a game played with freeplay, but winnings accrue to the player. Freeplay cannot be redeemed for cash. A dispute arose between the Western Cape Gambling and Racing Board (WC Board) and the casinos as to whether freeplay forms part of taxable revenue for gambling tax purposes under s 64 of the Western Cape Gambling and Racing Act 4 of 1996 and Schedules III and IV. After Sun International introduced the BALLY software system which could distinguish between freeplay and cash credits, SIML sought approval to exclude freeplay from gambling tax calculations. The WC Board expressed the view that freeplay is part of 'adjusted gross revenue' and therefore part of taxable revenue. The parties agreed to approach the high court for a declaratory order on the interpretation of the relevant taxation provisions.

• Whether freeplay credits awarded by casino operators to customers attract gambling tax under s 64 read with the Schedules of the Western Cape Gambling and Racing Act 4 of 1996
• Whether freeplay credits form part of the 'drop' which is a component of 'adjusted gross revenue' for determining taxable revenue
• Whether the inclusion of freeplay in taxable revenue constitutes arbitrary deprivation of property in breach of s 25(1) of the Constitution
• Whether the proper interpretation of s 64 of the Act and the definitions in Schedule III supports the inclusion of freeplay in gambling tax assessments

1. The application to introduce further evidence on appeal is dismissed. 2. The amicus curiae is ordered to pay the respondents' costs for the application for introduction of further evidence, such costs to include the costs of two counsel where so employed. 3. The appeal is upheld. 4. The order of the Full Court is set aside and replaced with the following order: 'The application is dismissed.'

Under s 64 of the Western Cape Gambling and Racing Act 4 of 1996, gambling tax is assessed on gambling activity rather than on revenue or benefit derived by the casino operator. Freeplay credits form part of the 'drop', which is defined as 'the amount deducted from players' slot accounts as a result of slot machine play'. This definition makes no distinction between credits paid for by the player and freeplay credits awarded by the casino. The 'drop' is a component of 'adjusted gross revenue' on which taxable revenue is determined. Therefore, gambling tax is payable in respect of freeplay credits. The interpretation of s 64 must begin with the plain language of the statute, considered in its proper context and having regard to its purpose as stated in the heading to the section. The word 'amount' in the definition of 'drop' cannot be read as 'amount of money' or confined to only a portion of the deduction where the amount deducted consists of different forms of consideration. The purpose of s 64 is to impose tax on gambling and betting activities. A gambling game is played 'upon payment of any consideration', and 'consideration' is broadly defined in the Act to include various forms beyond money. The fact that a licence holder makes no gain or derives no benefit from a game played with freeplay is irrelevant in assessing liability for gambling tax.

The court noted that no order as to costs of the appeal should be made because the approach to the courts was, in effect, a joint venture by the parties to achieve clarity on an issue of importance to all of them. The court observed that the respondents' approach to interpretation inverted the established interpretative process by first devising a purpose for s 64 and then imposing that devised purpose on the wording of the section. The court commented that evidence from Professor Lucas about practices in the United States regarding freeplay and gambling tax was not only unnecessary for the interpretative exercise, but also irrelevant, as the answer to the issue lies in the interpretation of South African legislation. The court noted that the imposition of gambling and betting tax is a deliberate policy adopted by the Western Cape Provincial Government, entailing the charging of tax on holders of gambling licences for the act of conducting gambling businesses, and there is nothing irrational about such policy.

This case is significant for South African gambling and tax law as it definitively establishes that freeplay credits awarded by casino operators to customers form part of taxable revenue for gambling tax purposes. The judgment clarifies the interpretation of s 64 of the Western Cape Gambling and Racing Act 4 of 1996 and provides important guidance on the meaning of 'drop' and 'adjusted gross revenue' in the calculation of gambling tax. The case reinforces fundamental principles of statutory interpretation in South African law, emphasizing that courts must begin with the plain language of the statute and consider it in context, rather than imposing a pre-conceived purpose on the text. The judgment confirms that gambling tax is levied on the gambling activity itself, not on the benefit or revenue derived by the licence holder. This has significant implications for the gambling industry and provincial revenue authorities across South Africa, as it establishes that casinos must pay gambling tax on all credits used by players, regardless of whether those credits were purchased by the player or awarded as complimentary freeplay. The case also addresses the relationship between taxation policy and constitutional property rights, rejecting the argument that taxing freeplay amounts to arbitrary deprivation of property.