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The dilemma of running lottery business in Nigeria

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Segun Arinze and Linda Usifo with the Give'n'Take Lottery machine

By ONI MOBOLAJI JOHNSON

INTRODUCTION:

Lottery Business is one of the most lucrative businesses on the earth. Apart from being lucrative, is also a major source for wealth re-distribution and an alternative to un-regulated ‘wonder bank’ or Ponzi scheme. It has been established that lottery proceeds are also used for Social Economic Development and Youth Empowerment Programme in some part of the world even in West African countries.

A country like Benin Republic feeds inmate and build prison from the proceeds of lottery. Between 1744 and 1776, lottery played a major role in financing roads, libraries, churches, colleges, canals, bridges in western countries. In the 1740s, the foundation of Princeton and Columbia Universities was financed by lotteries, as was the University of Pennsylvania by the Academy Lottery in 1755.

Lottery is said to be worth $70billion, and it is no longer a news that in 2016, it was estimated that Nigerians spent an average of N154bn on betting; with 7.5 million lotteries, and 22 million sports betting players in the country.

Despite the huge potential of the business in the Africa, there is need to take a stock on challenges and problems encounter by the operators, lapses from the government and the future outlook of the industry to save it pending danger.

THE PROBLEMS AND CHALLENGES:

  1. Overregulation of a particular lottery business
  2. Cost template
  3. Double taxation
  4. Influx of illegal lottery
  5. Deviance from statutory guideline by Regulator
  6. Issue of corruption

 

OVERREGULATION

Despite the fact that we have National Lottery Regulatory Commission to regulate lottery business in Nigeria, in line with National Lottery Regulatory Act 2005, it is unfortunate that the National licensed operators are facing regulations from states. Some states have taken their legal backing from Taxes and Level (Approved List of Collection) Act 1998; some claimed issue of lottery is not stated in exclusive legislative list and also not stated in concurrent legislative list in line with second schedule, section 4 of 1999 and thus they can make laws by their state assemblies to fully regulate lottery.

My argument for these claims are, there is a difference between collection of taxes and levels and Regulations; for example, the Central Bank of Nigeria regulates banks, that does not mean that banks will not pay local government T.V license rate in line with fourth schedule of section 7 of 1999 constitution. I was in Edo State this year to solve one of such problem for a client, where the Tax and levels approve list of collection was cited. Apart from asking for fixed promoter annual tax of N1.5m, they also request for license fees of N8m for five years from a National License Operator. It was so worrisome that when I contacted the zonal office of National Lottery Regulatory Commission in Benin to request how they can be of help, I was told the same body (Edo State Inland Revenue Services) also sealed their own office for lack of remitting their Pay As You Earn tax for their staff residing in Edo state. They had just unsealed them a week before.

Lagos state was the first state in the country to enact State Law to regulate lottery business in Nigeria. They dealt with National Licensed Operators, they seized their terminals and some of their agents were arrested for operating illegally despite their national license and there are many legal battles in courts. The bigger ones complied quickly with Lagos state board and enjoy some form of monopoly.

My little knowledge about law is that if National Assembly makes law and state house of assembly makes laws and such laws are not in agreement, to the extent that the law is not in agreement, the federal law will prevail. This principle also applies to Nigeria constitution (section 1 subsection (1) and (3)). It was argued in some quarters that though the National Lottery Regulatory Commission issues a license that covers all states, the states also have the power in their jurisdiction to issue same.

One funny thing now is that gladiators of Lagos State Board are now in the helm of affairs at the national level. We are watching to see how they will tackle problems they caused in the past.

COST TEMPLATE

Section 24 of National Lottery Regulatory Commission Act 2005 clearly states that from the proceeds of lottery there must be what is called Prize Fund. This will be 50% of the total proceed.

Sub section 3 states that a licensee shall pay 20% after determine lottery report (without expenses) to Lottery Trust fund. The industrial average of what you will pay an agent is 15% of gross. So, you have to contend with 15 % to cover your cost and provision for wear and tear of the lottery equipment.

The cost of obtaining a national license stand at N160million, including consultancy fees for ten years – meaning you have a fixed cost only on license to be N16 million per year. Lottery business is volume driven business; however, to break even needs a lot of time. With the other related challenges, this has made it impossible for operators to break even.

Please note that this cost template does not affect other gambling business, including Sport Betting and Casino.  In fact, outside casino taxation tax law of Lagos State 1964 and slot machine probation degrees 1989, there is no exact law that regulate any of these (sport betting and casino). Remember that the percentage of people that play sport betting is now far higher than those that play Lottery, yet there is no exact law that talk about them. I hope soon I will write about outlook of casino business in Nigeria.

With these cost burden, National License Operators will still pay state license fees and compulsory state tax, settle local government bill among many other.

DOUBLE TAXATION:

Operators are daily faced with one form of assault and threat from one local government or the other.

  1. Local government: Outside other taxes and rates, including TV licenses, Tenement rate and many others, they also ask for lottery licensee fee. Their argument is that you operate in a shop and they have their own definition about what makes up shops. I have fought this time without number. Unfortunately, they hire Nigeria police personnel to enforce this illegality and bring about business disruption. Their demand notice ranges between N 500,000 to N I have had cause to write a letter on this many times. I did not know when the lottery office becomes Liquor shop they have right to issue license for.
  2. The Federal Inland Revenue Services want company income tax of 30% of Taxable Profit. I mean whatsoever remain as profit from 15%, government will takes 30%. Remember I just told you about lottery cost template. If you dare declare loss for the first two years, you are in problem. They will be looking at turnover without understanding the lottery cost template.

We compare our tax to GDP ratio of other country without looking at underlying factors. It is important for the Inland Revenue Services to note that all over the world, there is no VAT on lottery business.

Cost of filing annual returns and others

  1. State Government

PAYE

Grand rent

Developmental fees

Lottery special tax, some state collects up to N2m yearly and N15,000 monthly. This is applicable to both Lottery and sport betting.

Influx of illegal Lottery Operators

Besides double taxation, National Lottery has gone to sleep over activities of illegal lottery operators. It is amazing to note that it is the same National Lottery that gives permits to some of this operator with ridiculous amount against those that obtain lottery license to operate full lottery business in the same market. Ironically, many illegal operators operate full lottery with permit and not license.

It will interest you to note that NLRC staff are pretending as if they did not know that period given to them has expired, thus allowing them full liberty to operate without obtaining license and not paying into trust fund account like core operators. These illegal operators pay their agent far higher compared to industrial average. Notable among them is Northern Lottery Kano.

ISSUE BOTHERING ON CORRUPTION

Most of the problems raised above could have been solved if the 20%,25%  contribution for the Trust Fund were adequately and judiciously put to use. As at June 2014 the trust fund has in her custody over N4billion.

If the society knows that lottery operators give back to them through a particular mean, to some extent it will reduced perceived responsibility the community /society is expecting from the core lottery operator.

  • MOBOLAJI JOHNSON, FCA, MSC, is Member Steering Committee and REP of People Empowerment Lotto