When legal betting loses, illegal betting wins

MALAYSIA has a curious contradiction when it comes to gambling. On the one hand, the government licenses and regulates legal number forecast operators (NFOs) such as Sports Toto Bhd and Magnum Bhd.

These companies operate within a legal framework, pay huge taxes and duties, employ thousands of people, support community works including sports development and are subject to regulatory controls.

NFOs like Sports Toto, Magnum and Da Ma Cai are heavily taxed as they pay multiple layers of taxes and duties on every single ticket sold.

On the other hand, illegal betting – particularly online betting – has grown into a huge shadow economy, operating largely outside the tax system and beyond the safeguards imposed on licensed operators.

It has been reported that the government loses about RM5bil annually in tax revenue to illegal gambling syndicates and bookies.

Because illegal operators do not pay a single sen in gaming taxes or corporate duties, these syndicates drain massive resources from the national economy.

Another report has it that illegal 4D betting and gambling syndicates generate at least RM18bil in revenue annually.

That’s twice the revenue of Malaysia’s tax-paying NFOs while The Star reported in 2023 that illegal bookies run more than 50 websites and smartphone apps, allowing them to bypass physical law enforcement and operate 24/7.

The irony is that Sports Toto is not allowed to take bets online with punters having to physically buy these tickets at the outlets.

Then, these illegals give higher payouts because they don’t pay taxes, and provide credit extensions to punters which encourages continuous gambling.

On Aug 12, the Federal Court unanimously dismissed the Kedah state government’s final appeal to reinstate a ban on lottery and gaming outlets.

In short, the apex court ruled that the state government has no right to ban these gaming outlets, as the licences were issued by the Finance Ministry and not the state.

The Kedah state government, however, issues business permits for the outlet premises, but any attempts or delays to allow these outlets to commence business can be regarded as contempt of court.

The question we should be asking is simple: Are some policies intended to eliminate legal gambling actually helping illegal gambling to flourish?

This is particularly relevant in states controlled by PAS, where state governments have sought to stop the operation of licensed gaming outlets.

Kedah is the clearest example. The state government stopped renewing business premises licences for licensed NFOs, effectively forcing their outlets to close.

In 2023, all such premises in the state ceased operating. Perlis also saw the closure of legal outlets.

Sports Toto itself warned that the closure of legal outlets in Kedah and Perlis could result in the proliferation of illegal operators in underserved areas.

Magnum has made a similar argument, warning that illegal operators undermine legitimate companies while depriving the government of significant tax revenue.

This is not an argument in favour of gambling. It is an argument about whether prohibition actually achieves its intended purpose. It is plain common sense.

People who want to gamble do not necessarily stop gambling simply because a legal outlet disappears.

They may simply move elsewhere – increasingly to their mobile phones.

The illegal operator, unlike the licensed operator, does not have to pay gaming duties, comply with the same regulatory requirements, maintain physical premises or operate under the scrutiny imposed on legitimate companies.

It can offer betting around the clock, advertise through social media and messaging platforms, provide credit and move from one website or platform to another when enforcement agencies catch up.

The Prime Minister has acknowledged the scale of the challenge. In Parliament this year, Datuk Seri Anwar Ibrahim said illegal gambling was difficult to curb partly because online operators are often based overseas and can quickly start and shut down operations.

He also said enforcement actions had resulted in seizures worth billions of ringgit, according to a Bernama report.

The scale of enforcement illustrates the problem. In July, police said 554 people were arrested in 422 raids during a nationwide crackdown on illegal betting linked to the 2026 World Cup, with betting credits totalling RM3.24mil detected, Bernama reported.

And these are only the operations the authorities managed to detect.

There is another important issue: the difference between a legal and illegal operator is not merely a matter of a licence. It is a matter of who benefits from the money.

When someone buys a ticket from a licensed operator, the activity is visible and taxable.

When the same person places a bet with an illegal operator, the money disappears into the underground economy.

Magnum says its business contributes to the economy through taxes, gaming industry duties, employment and its nationwide network.

Its latest annual report says the group generated RM2.30bil in revenue in financial year 2025 and supported no fewer than 2,600 jobs across its agency network and offices.

There is a distinction between saying gambling should be tightly controlled and pretending that shutting down legal outlets will make gambling disappear.

It won’t. In fact, it may produce the opposite outcome.

The legal industry is already carrying a considerable tax burden. Research cited by The Star noted that the increase in service tax placed additional pressure on NFOs, which were already subject to gaming taxes and duties.

This is why the Kedah case is more than a dispute about gambling outlets. It is also about the division of powers between the federal and state governments.

The Court of Appeal ruled in May that the Kedah government’s blanket refusal to renew premises licences had the practical effect of prohibiting federally licensed betting operations.

The majority held that betting and lotteries fall within federal jurisdiction, while the state’s premises-licensing powers cannot be used to frustrate that federal framework.

But beyond the constitutional argument lies a practical question for policymakers: What happens to the punter after the legal outlet closes? Does he suddenly stop betting, or does he simply find an illegal outlet?

If the latter happens, then the policy has not eliminated gambling. It has merely shifted gambling from a regulated environment into an unregulated one. That is the uncomfortable reality policymakers need to confront.

The answer cannot simply be to allow gambling everywhere.

There must be strict controls on where licensed outlets operate, who can participate, advertising, age restrictions and responsible gaming.

But shutting legal operators out of entire states while illegal online operators remain only a few taps away on a smartphone is hardly a sustainable strategy.

If someone is determined to gamble, the government cannot realistically pretend that the desire does not exist.

Its responsibility is to minimise harm, enforce the law and prevent criminal networks from profiting from the activity.

That means going after illegal operators, blocking their payment channels, disrupting their websites, prosecuting their organisers and educating the public.

It also means looking honestly at whether excessive restrictions on legal operators are unintentionally handing customers to criminals.

PAS-led states may have a legitimate moral and religious objection to gambling. That is their political position, and they are entitled to defend it, but policymaking must also deal with consequences.

If legal outlets disappear while illegal betting expands, the winners are not the state governments, the taxpayers or society.

The winners are the illegal bookmakers.

Malaysia, therefore, needs a more realistic approach: regulate what is legal, aggressively prosecute what is illegal, and do not confuse the closure of a legal shop with the disappearance of gambling.

This is because when the legal betting operator is forced out, the illegal operator does not necessarily disappear. He simply happily takes his business online.

An effective and realistic approach is to consider allowing legal lottery operators to migrate to online channels to better control customers through vigorous electronic Know Your Customer or eKYC verifying the identity of its customers.