BiH: Profits and Losses

Unemployment and a poor economy have been realities since the end of the war, and many seem to view local betting shops as a way out: a few lucky breaks could bring a better life.

But more than 2,000 slot parlors and lottery shops, from Banja Luka to Sarajevo, don’t survive by giving away money. They take it, providing their owners with better profits than just about any other business around, according to Assistant Minister for Fiscal Policy for the Federation of BiH (FBiH), Hajrudin Hadžimehanović.

Keeping track of those profits has proven difficult for tax collectors in both the FBiH and the other BiH entity, the Republika Srpska (RS). The central government plays no role in the gambling industry, leaving each entity to make its own rules, enforce them and monitor the hundreds of millions of KM gambled each year.

While they operate separately, the entities face the same issues: Gambling houses make a lot of money, and government does not make sure they pay their full share of taxes.

The Organized Crime and Corruption Project sent reporters into the RS and to FBiH to examine the country’s fastest growing industry. Using public records and interviewing regulators and gambling house operators, reporters looked at the current state of the industry, the problems it faces and what lies ahead.

FBiH Turns to Technology

It is difficult to walk more than a couple hundred meters in Sarajevo without passing a slot parlor or betting shop, and the situation is similar across the FBiH. Thirteen companies operate 1,511 bet shops in the 10,000-square-mile entity, and another 80 offer slot machine gambling.

In 2007, bet shops pulled in revenue of 128 million KM and slot clubs collected 10 million KM, according to figures released by the FBIH Ministry of Finance.

Another way to look at it: people gambled away at least 138 million KM instead of spending it on clothes, food and other necessities.

But even those numbers don’t tell the whole story of a cash-only business that makes determining an accurate total difficult. And many owners don’t bother complying with basic reporting laws, according to government records.

Revenues for 2008 have not yet been tabulated because half of the gambling houses in FBiH haven’t filed the mandatory financial reports, according to Edah Ćerimagić, director of the Agency for Consulting, Information Technologies and Financial Services (APIF).

As of April, betting shops and slot machine parlors in FBiH have defaulted on nearly 7.5 million KM owed the government. That money includes unpaid employee contributions, income taxes, taxes on winners, and a series of other obligations including government stamps, fines, and licensing fees, according to government records.

In the past 16 months, the tax administration suspended the licenses of 401 gambling establishments that operated after their permits had expired. By law, companies must pay for licenses and other fees each year, but many just don’t bother.

FBiH officials hope new technology may help them better monitor the gambling houses and gain more insight into their actual earnings.

A proposed law would require every gambling facility in the entity to be connected via the internet to the tax collector’s office, which could better monitor the total daily receipts. Each bet shop would be responsible for buying and installing the equipment.

“The BiH Lottery has already implemented the program and it made the job much easier for the Tax Administration and allows for more efficient oversight,” said Hadžimehanović, the assistant finance minister.

Another recent law change has also helped streamline operations. Each bet shop in FBiH pays a single rate of 10 percent of its earnings as a tax. Before that, each of the 10 cantons had different rules and rates.

The Casino

The only full casino operating in all of BiH is the Coloseum in Sarajevo, owned by the Hit Corporation of Slovenia. Opened in 2007, it has remained clear of complaints of illegal activity so common at casinos in other Balkan countries, according to government records.

That may be in part because the country’s requirements for getting a license are more stringent than those of many Balkan countries.

Anyone applying for a full casino license must meet an array of conditions, including initial capital of 1 million KM and another million in guarantee funds, according to Hadžimehanović and the FBiH Law on Games of Chance.

But Hadžimehanović said the structure has a downside—the laws are not flexible enough to attract more casino operators, and push potential owners away. New laws in the works may make it easier for prospective owners, he said, but for now the situation is difficult.

“There have been no applications for opening casinos lately” said Hadžimehanović. “In the past, some of those who were interested quickly gave up on the idea once they found out about the strict rules.”

RS Tries to Crack Down

Đorđe Mikeš has a dilemma.

The AFIP director in Banja Luka said he has received the 2008 financial reports from only about half of the owners of the 581 storefront betting shops or the 216 slot machine parlors in the RS.

So far, the bet shops there have reported more than 26 million KM in revenue and slot clubs say they’ve pulled in about 10 million KM, according to the government’s records. The others simply ignored the Feb. 28 deadline.

By law, every licensed gambling facility was to pay a fine of 17,000 KM and every individual 1,000 KM for missing that deadline.

But Mikeš explained that the government has not taken legal action because the cost of filing a complaint and a lawsuit is 500 KM. Considering the number of potential cases, the agency doesn’t have enough money to file all the suits.

Even without all the businesses reporting, last year the RS government collected just under 9 million KM in revenues generated by the various gambling houses, and another 375,000 KM by taxing the winnings of casino players.

But plenty is still owed, including more than 1.5 million KM from just three companies.

The RS Tax Office has started collection actions against Bet Shop LLC (for what it says the company owes - 437,000 KM), Millennium Sport LLC (684,000 KM) and Derby Games LLC (535,000 KM).

Special Programs

The money generated by all the different forms of gambling in both entities has raised the issue of how it should be distributed.

The Center for Civil Initiatives, a non-governmental organization, wants the money earmarked for special programs for the disadvantaged, agency spokesman Adis Arapović said.

The RS already mandates that gambling taxes be spent on youth sports, civic activities and assisting the poor. FBiH used to do just that, but former Prime Minister Edhem Bičakčić backed a change in the law that put all money from games of chance into the FBiH main budget.

That would change again under legislation now proposed in FBiH that mandates gambling revenue be spent on amateur sports, aid for people with disabilities, prevention of drug abuse and addiction, education and promoting cultural events.

“All of this money should go into special funds to be used for financing all kinds of projects,” Arapović said. “It has to be allocated for the neediest categories of population.”

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