New Delhi, Sept. 26 -- Governments have spent the past decade raising the duty they charge licensed gambling operators, and several are now discovering that the activity they taxed has moved somewhere their revenue authority cannot reach. Brazil's Congress is trying to strip casino games out of a betting market it legalised two years ago. Australian states diverge on what they permit and collect. The common thread is not a disagreement about gambling policy. It is a question about where a state's taxing power stops once the counterparty is incorporated elsewhere.

Kedah stopped renewing the business licences of gaming outlets through its local councils, and Perlis restricted alcohol sales at coffee shops and restaurants at the start of 20...