Lotteries and Gambling

Chapter 15 argues that transactions involved in games of chance should be included in the VAT base, regardless of whether or not lotteries and gambling are subject to externality-correcting excises. The charge should extend to all forms of gaming, except if feasibility considerations (e.g. village cockfights) preclude the effective application of the VAT. The chapter also shows that the reverse-charge approach and the margin method lead to identical outcomes in calculating the VAT liability. To prevent double taxation and diversion of transactions, the VAT paid for the acquisition of non-monetary prizes and awards should be creditable against the VAT on sales of tickets, tokens, and chips. If a casino is part of a larger establishment operated by a registered business, the VAT on a non-monetary prize (say, a night’s stay or meal at a hotel) should be denied to the casino in order to ensure that the prize’s value is taxed once.