In its 2002 submission to parliament, the FFC said these earnings as a share of total own revenue had declined in general and were "expected to be zero for some provinces".
"The advent of different lotteries that compete directly with gaming activities has resulted in a decline in activities such as horse racing and betting.
"Consequently, a number of racecourses have been closed, and hence the declining trend in revenues from this source."
The proportion of own revenue through taxes from these activities had dropped from about 8% in 1997/98 to an estimated 4% in the 2003/04 financial year, it said.
The commission was presenting its proposals on Monday for the coming financial year to the National Council of Provinces' finance committee.
Gauteng remains the biggest earner from gambling, horse racing and betting, generating R71 million in 2001/02.
Although this is expected to increase in the next two years to about R78 million, it is a far cry from the R190.9 million earned in 1997/98.
Most figures are down
The Eastern Cape did not generate any funds from these sources last year and is not expecting to in 2002/03, compared to a high of R13 million in 1998/99.
The Western Cape is forecasting to generate R19.5 million this year as opposed to R31.8 million five years ago.
Earnings in Northern Province and the Free State are roughly the same as in 1997/98, but income has grown in Mpumalanga, the North West and the Northern Cape, although from a lower base.
The FFC said the tariffs paid to provinces were considered to be arbitrary, and there was a general lack of clarity on how they were calculated.
Another problem was a lack of organised financial reporting systems.
"It is difficult for provinces to know the exact amounts generated by casinos, and so they have to rely on often-inaccurate casino reports."
Some casino understated the revenues they generated.
"Recently, the North West provincial government compared audited casino statements with reported revenues and identified significant discrepancies between the two sets of numbers."
However, it said the revenues should stabilise with time.
The FFC said: "It is important to note that over time, as the industry stabilises, there are expectations that the revenues from this source will also stabilise."