The Nigerian lottery and gaming industry has seen a lot of growth and expansion in recent years. This is mostly driven by the growing popularity of the sports betting segment fuelled by the huge followership of premiership football and other similar sporting activities. The number of participants in this industry has been on a steady increase and this corresponds with increased level of transactions. It is expected that the industry will continue to grow due to its popularity and acceptance by the Nigerian sports enthusiasts.

The industry has attracted renewed attention from the Federal Inland Revenue Service (FIRS) whose mandate is to collect taxes from all taxable economic activities. With a revenue target of N8trillion for 2019, the FIRS has been quite bullish in its tax collection efforts to ensure it meets this target. The FIRS recently announced its intention to enforce the collection of Value Added Tax (VAT) on lottery and gaming activities. The plan is to automate the process of VAT collection directly from the operators of lottery and gaming machines. This was disclosed at the stakeholder's meeting recently organised by the FIRS in conjunction with the National Lottery Regulatory Commission (NLRC).

Many stakeholders are concerned about this development as the charge of VAT on stakes (bets) may discourage bettors (people who place bets) from using their services and encourage the use of informal and foreign operators, which will lead to loss of revenue.

Understanding the lottery and gaming industry in Nigeria

The gaming industry in Nigeria comprises of several segments such as; sports betting (which has both online and offline versions), casinos, pool betting, gaming machines, scratch cards and interactive games, promotional competitions run by companies like banks and telecommunication companies, public and private lotteries. The industry is governed by the National Lottery Act 2005 (NLA) and The National Lottery Regulation 2007 (NLR) at the federal level and Lagos State Lotteries Law 2008 (LLL) in Lagos state. Within the Nigerian regulatory framework, the word 'gaming' is one that is associated with many judiciary and statutory definitions and perceived to be subsumed under the word "Lottery".

Based on Section 57 of the NLA, lottery includes any game, scheme, arrangement, system, plan, promotional competition or device for the distribution of prizes by lot or chance, or as a result of the exercise of skill and chance or based on the outcome of sporting events, or any other game, scheme, arrangement, system, plan, competition or device, which the President may by notice in the Gazette declare to be lottery and which shall be operated according to a license. Similarly, Section 48 of the Lagos State Lotteries Law 2008 (LLL), defines lottery to include any game, scheme, arrangement, system, plan, or device for distributing by lot or chance and any game, scheme, arrangement, system, plan or device, which the Commissioner may by notice in the Gazette declare to be a lottery.

Are lottery and gaming activities VATAble?

VAT is administered under the VAT Act Cap V1, Laws of the Federation of Nigeria, 2007 (VATA or the Act). Based on VATA, VAT is chargeable on all goods and services except those specifically exempted under the Act. It is common knowledge that lottery and gaming activities cannot be classified as a good and the word "service" is not defined under the VATA and the Interpretation Act. This notwithstanding, we can obtain guidance from the Blacklaw's dictionary which defines service as the act of doing something useful for a person or company for a fee. It is also defined as – work performed for pay or paid work by another person, either by contract or as an employee. In these definitions, the word service alludes to doing something for a consideration. So does this apply to lottery and gaming activities?

Concerns on the operation of VAT on lottery and gaming activities

The nature of gaming activities is peculiar, its administration may vary from one bookmaker (a person who manages a betting facility, take bets, calculates odds and pays winnings) to another, as there is no hard and fast rule to how the games are administered. There are several inconsistent method being used, one general method is for bettors to pay an admission fee before being allowed to place bets. In such a case, it is apparent that there is a service fee and VAT should apply on the fee. However, the most prevalent format is that a bookmaker accepts bets from a bettor on the outcome of an event (e.g. sporting event) and after the event has occurred, winnings are paid out to the successful bettors. At no point is any payment made in the form of a service charge or participation fee as the bookmaker merely creates an avenue for bettors to pool funds together. This model is similar to the insurance business model which is also based on a chance or probability of an event occurring. The stakes (bets) can be likened to premiums paid by subscribers to the insurance company. Consequently, the pertinent question to be answered is, if insurance premiums are not liable to VAT, what then is the basis for charging VAT on bets?

It has been argued in some quarters that operators of lottery and gaming activities are providing "entertainment" in the form of lottery and gaming services and therefore, this can be a basis for charging VAT. However, entertainment is defined under the VATA as any exhibition and performance in which the admission of people is subject to payment by such persons. Hence, the argument cannot be sustained as lottery and gaming activities are neither exhibitions nor performances. Notwithstanding, it is unclear at what point VAT will be charged. The FIRS announcement that the automation will enable the FIRS to collect VAT on each transaction made, suggests that VAT will be charged on every stake (bet). Assuming but not conceding that our current laws permit the charge of VAT on lottery and gaming activities, the mode of administration proposed by the FIRS may be considered impractical.

Practice in other jurisdictions

A review of the practice in other jurisdictions shows that their tax laws have provisions which enables them to capture the gaming industry under their VAT regime.

In South Africa, the VATA recognises what is known as "deemed supplies"1 which applies where a taxable person is subjected to VAT even where no supply of goods or services have been made. Section 8 (13) of the VATA specifically provides that where a person bets an amount of money on the outcome of any event or occurrence, the person with whom the bet is placed is deemed to supply a service to the person placing the bet. Thus, the entire bet placed is deemed to be payment for the supply of service.

The South African tax laws has robust provisions on the application of VAT to the gaming industry. This ranges from horse racing to casino. It covers transactions between punters and bookmakers as well as transactions wholly between bookmakers (bookmaker to bookmaker, take back bets). Due to the intricacies involved in table games of chance such as roulette and the difficulties in separating bets from winnings, a general binding ruling has provided for a net drop method. This method allows the casino to deduct the total winnings paid out, from the total bets paid in, after which the VAT percentage is applied. This may result in either liability due from or refund due to the casino.

In Malta, under the Third Schedule to the VAT Act Cap 406 Laws of Malta,2 Paragraph 10 (1)(c) makes reference to games of chance and gambling games. The Malta VAT guidelines on gambling services that came into effect on January 1, 2018 makes provisions for supplies considered "exempt without credit". The exempted services include sports betting, lottery and excludes casino type games (roulette, blackjack and other games of chance dependent on a random generator). Thus lottery and gaming services not exempt are considered taxable supplies per the guidelines. In determining the taxable value of the gambling services considered taxable supplies, the guidelines make provisions to the effect that where a participation fee or commission is paid by bettors to the casino/bookmaker, the commission paid is assumed to be VAT inclusive. Where this is not applicable, VAT will be charged on the revenue of the bookmaker/casino using the net drop method, i.e. Total bets minus Total Winnings.

The way forward

The FIRS' effort to expand the tax net and collect taxes from industries who have hitherto not been paying appropriate taxes is a welcome development. However, these efforts must be guided by existing tax laws and where the laws are inadequate, there will be need to revisit and modify them in order to ensure their adequacy. The fact that other jurisdictions deemed it necessary to include a deeming provision in their laws so as to capture activities in the lottery and gaming industry, emphasizes the fact that the activities are not necessary services. In the absence of similar provisions in the Nigerian tax laws, the FIRS can be successfully challenged on this, as any attempt to collect VAT on the activities will not be backed by the existing tax laws. There is therefore a need to revisit the VAT Act to ensure its adequacy to subject lottery and gaming activities to VAT.


1. South African Revenue Service, Interpretation Note: No 41 (Issue 3) accessed on April 19, 2019.

2. Laws of Malta Value Added Tax Act Cap 406 accessed on April 19, 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.