Authority told to tighten screws on gaming taxes

An audit on gaming taxes collected by the Malta Gaming Authority (MGA) has revealed that financial statements presented by gaming operators did not give sufficient detail of the composition of income for the purpose of tax calculations as required by the gaming authority.

The National Audit Office’s annual verification exercise found that monthly reporting obligations with respect to player liabilities and taxes were not always being followed by the gaming operators – a risk for the MGA if operators do not have sufficient financial resources to cover their players’ funds if they cease operations.

The NAO tested 45 licences, two of which belonged to casinos, one to the National Lottery operator and the remaining held by remote gaming operators: all accounted for €26,476,866 in gaming tax out of the total €53,785,256 in taxes payable to the MGA for the year.

The NAO found that 16 companies, altogether holding 29 licences that were invoiced over €3.5 million in gaming tax, did not file regular reports on their cash resources – a problematic scenario since the MGA opened itself up to a situation where it could not assess if operators can cover players’ funds. “The risk that MGA cannot take remedial action in a timely manner increases,” the NAO said.

Gaming operators must file monthly reports of the balances of players’ accounts, the balances in the relative credit institutions, funds in transit or in the process of being cleared, and a resulting surplus or shortfall. A shortfall implies that the players’ balances cannot be covered by the funds in the operators’ bank accounts if they were to cease operation.

On its part, the MGA said that in October 2015, it employed two financial compliance officers to analyse the monthly player liability returns and ensure that the non-submission of these returns is reported to the Enforcement Directorate and that any fund shortfalls are immediately investigated. “Due to these actions, MGA can already report a significant increase in submissions.”

Other similar scenarios were found at the MGA, with the authority unable to assess whether the tax due from gaming companies was correct, since independent tax calculations, against which reported figures could be compared, were not available. The NAO said the MGA was accepting the amount of taxes as declared by the operators, without further questioning.

“Similar issues were also encountered when attempting to recalculate the taxation of €22,058,502 due by the two sampled casinos and the National Lottery operator. Testing revealed that a breakdown of these amounts was provided by said licensees in their respective monthly tax submissions. However, even though audited Financial Statements were available in the case of one casino and the National Lottery operator, the figures presented in these statements did not provide a sufficient breakdown of the revenue generated by the different games. As a result, since different taxation rates apply to the various games, the taxation figure could not be recalculated for auditing purposes.”

MGA officials confirmed that during 2014, no procedure was in place for the checking of taxation documents submitted, and related payments. Vetting from MGA’s end was only being done in specific circumstances, such as upon the renewal of a licence.

The authority has now set up a Revenue Assurance Unit, which has developed a risk assessment process to regularly categorise licensees’ tax leakage risk as low, medium or high. High-risk licensees will be subject to a financial compliance review.

Licence     Number of Licences    Amount Invoiced during 2014

Class 1     26                                   €561,500

Class 2     6                                    €2,208,817

Class 3     8                                    €1,627,079

Class 4     2                                    €20,968

Casino     2                                     €9,957,720

National Lottery     1                      €12,100,782

Totals                     45                  €26,476,866