Unregulated online gambling costs Sri Lanka billions in uncollected taxes

Government missing out on online gambling revenue while taxpayers carry the burden

Millions of rupees in revenue are slipping through the fingers of the government as the rapidly expanding online betting and gaming industry remains almost entirely untaxed and unregulated, leaving ordinary taxpayers to bear the financial burden.

Despite authorities blocking twenty-four unlicensed gambling sites this month ahead of the proposed Gambling Regulatory Authority, experts state that the government is failing on both tax collection and enforcement.

The scale of the financial loss was highlighted by tax expert Suresh Perera.

"During the discussion of the Committee of the Parliament for Finance, COPF, also it was pointed out almost 60–70% of the betting and gaming casinos is happening online in Sri Lanka now. So, in relation to online activities, there is hardly any tax that is being collected because of the nature of this activity. So what is an online casino? That means there is a non-resident person, a foreigner, running a website outside Sri Lanka. So the Sri Lankans log into this website and take their bets. Now, they don't have their physical presence in Sri Lanka, so Inland Revenue Officers find it difficult to go after this..."

Beyond the loss of revenue, online platforms aggressively target lower-income groups and young sports fans, according to Advocata Institute research consultant Sudaraka Ariyaratne.

"Since that report came out, there has been a burgeoning of online betting platforms in Sri Lanka that are operated, seemingly, by local operators that target a very specific demographic of young people in their 20s to 30s who are fans of sporting events like cricket, but not just limited to cricket, who are regular viewers of these different sporting activities to get them interested in betting on these games and through that to promise them some sort of win, only to then be basically betrayed of these promises and for these people to lose the money that they initially didn't have to begin with, because the advertising is specifically targeted towards more lower social strata of society. There was a lot of public conversation about these platforms. What the government did was to go and ban a few websites, but simply banning a website is not going to solve the problem because people can always use VPNs. So we need to be more strategic about how we do this, and for that, we need to think about how we regulate the financial platforms through which these transactions are facilitated and a whole lot of other practical strategies to tackle the issues that are part and parcel of, you know, online gambling in terms of addiction and advertising and all of that. And for that, the Gambling Regulatory Authority has a lot of work cut out for itself to do."

The state continues to collect virtually zero revenue from this lucrative sector while middle and low-income citizens face the brunt of national taxation.

Taxing this industry requires looking at alternative revenue sources rather than overburdening ordinary citizens, Suresh Perera added.

"I think right now, I'm not making a big mistake if I say, it is a zero revenue to the country. But according to the data that we are talking of, 60 to 70% of the casino betting and gaming is happening online. So there's a big chunk of potential tax revenue that we are not getting. Now this is something the government should look at seriously and address this situation, because due to the country's fiscal situation, into the future also, Sri Lanka has to impose taxes, collect taxes, and this is a business area that should definitely be looked at in collecting those additional taxes the government will need, rather than trying to look at Sri Lankans' middle-income class or the low-income class to be the subjects for collecting that additional taxes."

Simply blocking websites fails to address the core problem due to the ease of using virtual private networks, Sudaraka Ariyaratne warned.

"There was a lot of public conversation about these platforms. What the government did was to go and ban a few websites, but simply banning a website is not going to solve the problem because people can always use VPNs. So we need to be more strategic about how we do this, and for that, we need to think about how we regulate the financial platforms through which these transactions are facilitated and a whole lot of other practical strategies to tackle the issues that are part and parcel of, you know, online gambling in terms of addiction and advertising and all of that. And for that, the Gambling Regulatory Authority has a lot of work cut out for itself to do."

Without targeting the financial payment platforms and closing tax loopholes, the booming industry will continue to exploit vulnerable demographics while contributing virtually nothing to the state treasury.