New amendments to the Lotteries and Other Games Act are expected to introduce new, strict regulations on Video Lottery Terminals (VLTs), more commonly known as “fruit machines”. These gambling machines are estimated to take in over Lm20 million per year from their pitches in bars and other entertainment establishments scattered across the islands – revenue that at the moment is not properly checked and leaves no real income tax trail.

Among the various amendments awaiting the Cabinet’s stamp of approval are a change in classification of VLTs from amusement to gambling machines, the imposition of age limits on their use, and on-line monitoring of the machines.

The amendments, drawn up by the Lotteries and Gaming Authority (LGA), also propose the installation of dome cameras wherever a VLT is in use. They will also ensure that such machines are giving the payout ratios as stipulated by law, currently at 80 per cent, and allow the authorities to “plug into” the digital machines with a special USB key, of which only the LGA will have a copy, to assess gross earnings and payout ratios by viewing the machines’ histories.

Although there are no concrete statistics on the number of VLTs in working order in bars and entertainment establishments, it is estimated there are some 4,000 in use and that they average Lm100 per week in earnings.

As such, some Lm20.8 million is being generated each year, revenue the VAT man cannot ascertain is correct and on which operators are not being charged income tax.

While the government is not expected to collect extra revenue with the new regulations, since the machine operators are currently charged VAT on their takings and activities subject to gaming tax are not subject to VAT, the measures will monitor takings and ensure the appropriate taxes are being paid. Furthermore, the LGA has proposed that the gaming tax applicable to the machines be in the region of the 18 per cent VAT rate.

One major sticking point in enacting the new legislation is the fact that virtually all the machines on the market are cheap and highly subject to tampering. While they provide the same gaming function as the more sophisticated models used at casinos, their security measures are practically non-existent.

A simple turn of a screwdriver, for example, is enough to reset the machine’s intake and payout data – data the LGA intends collecting by means of a direct on-line link-up to the Authority. The machines’ data, additionally, will only be accessible and its settings altered by means of a special USB key, of which only the LGA will have a copy.

As such, there is a good possibility that the new law will make such cheaper machines, which constitute practically the entire market, illegal and operators will have little choice but to replace them with new models with tamper-proof security features.

Should the LGA’s amendments see the light of day, the government will be able to precisely assess each machine’s revenue, while also providing for an income tax trail. As such, the amendments could spell out at least modest gains in tax revenues for the State coffers.

Speaking to The Malta Independent on Sunday following a Vodafone Economic Forum conference on the I-gaming sector, LGA chairman Joe Zammit Maempel explained how current legislation classifies VLTs as amusement machines in the same category as arcade games, when in actual fact they are gambling machines. As such, “fruit machines” are considered to be in something of a grey legal area.

“At the moment a spade is not being called a spade,” he commented. “Being classified as amusement machines, all VLTs are subject to is a Lm5 licence from the police. There are no taxes paid on the machine’s earnings, leaving no income tax trail, nor is there an age limit and children as young as 12-years-old can be seen playing them.”

The problem lies in the fact that the legislation was enacted in 1988, before the major strides taken in the realm of technology, and as such it classifies gambling machines as those that give a payout in actual coinage.

Later machines coming on the market, however, give out a chit that is later redeemed by the establishment running the machine. Older, more traditional “slot machines”, as provided for in the current law, are now practically obsolete but casinos still have them on the floor as a form of nostalgia and to lend that casino atmosphere – the sound of a “jackpot” with coins tumbling from the machine. Dr Zammit Maempel likened them to expensive vintage cars.

The LGA has been involved in drawing up amendments to the legislation since at least early 2005, but has been hindered by legal complications. In March 2005 the LGA held meetings with both the European Commission and Maltese stakeholders.

Provided there are no further hiccups, the legislation is expected to be enacted by 1 June of this year.

Dr Zammit Maempel said the authority had finalised its draft regulations and passed them on to the finance ministry, which provided its feedback and recommended alterations to what was proposed.

The suggestions were taken on board and the draft has been altered and was returned to the finance ministry last week. The amendments are now expected to move to Cabinet level for approval and a definitive reply is anticipated by the end of the month.