Gambling taxation: A comment

Smith (2000) argues that the Goods and Services Tax (GST) provides a more equitable method of taxing gambling than does a tax on betting stakes. In this comment, we demonstrate that the application of the GST to gambling is an example of a move away from commodity taxation in favour of ad valorem taxation. The economic literature on the subject suggests that ad valorem taxes are welfare superior to equivalent commodity taxes in numerous oligopoly settings. We contend that this literature provides additional support for the desirability of this change in tax policy and also note that the UK Government has recently decided to adopt a similar change.