As a plethora of different approaches are taken across Europe, Stephen Hodgson, the BGC’s tax expert, warned that there is a clear tipping point in terms of gambling taxation rates and getting it right to complement the regulated market.
As the UK is speculated to be almost doubling remote gaming duty from 21% to 40%, Hodgson warned iGaming Expert of the consequences of pushing taxation rates beyond the tipping point.
Hodgson stated: “Gambling tax rates at 25% and higher are generally correlated with less successful markets and greater black market activity. Those sorts of rates put pressure on operators to reduce returns to customers, be less generous with bonuses and promotions, and reduce marketing activity.
“There is clearly a tipping point at which the regulated market shrinks, tax revenues fall, and consumers suffer. That’s a lose-lose-lose situation. That’s the danger that policymakers need to be aware of and seek to avoid.”
There have been continued alarm bells sounded over the correlation between the UK and the Dutch market, however, at many points, these comparisons have seemingly failed to resonate with regulators.
This was never more evident than during a Select Committee hearing, where backbench MPs seemingly showed their intent to dismiss any notion that the UK market could suffer the same fate as the Netherlands, in spite of taking a similar path when it comes to tax.
“It might be convenient for some campaigners to dismiss what’s happened in the Netherlands, but it’s undeniable that higher taxes there have resulted in a smaller regulated market and a shortfall in tax revenues”, added Hodgson.
He did, however, assert his belief that “the UK government is aware of the situation in the Netherlands, and I believe they take it seriously and don’t want to see it replicated in the UK”.
Hodgson added: “The most successful gambling tax regimes combine reasonable rates – usually no more than 20% – with a sensible tax base like net gaming revenue (NGR) and straightforward administrative procedures. Those regimes typically have higher rates of compliance, stronger tax receipts for governments, and smaller black markets.
“Whilst not perfect, the UK has generally been regarded as a good example of a successful gambling tax regime, and I really hope that will continue. Elsewhere in Europe, Belgium’s 11% regime and Spain’s 20% regime are usually viewed positively, and there are others as well. Of course, the overall success of any market is a product of both its regulatory and tax regimes.”
In terms of frameworks that have taken an alternative strategy, Estonia’s new approach stands out and was described by Hodgson as ‘a smart approach’, also revealing aspirations that lowering tax rates to increase tax intake is a principle that he hopes to be applied in other countries.
Proposals in Estonia are set to see the staged decrease of the remote gambling tax from 6% to 4%, falling by 0.5% per year.
During the first reading of the bill, which took place earlier this week, the government assured that all funds will go to culture and sports.
Foreign Minister Margus Tsahkna caveated that there are provisions in place to ensure the decreases are paused if revenue targets aren’t hit.
Hodgson emphasised: “It’s a good way to grow and sustain a well-regulated market. That means better choice and protection for consumers, economic growth and the creation of jobs, and – ultimately – higher tax revenues.”
Timing is everything when it comes to such significant taxation shifts, and Hodgson details that the latest impending changes compound pressure on UK operators, which have ‘faced a litany of revenue and cost pressures in recent years’.
“That ranges from the changes in the Gambling White Paper, to higher payroll taxes, to the RET levy, to the Economic Crime Levy. Land-based operators have also had to contend with high inflation and property taxes. If you then add gambling tax increases on top of all that, it’s a serious challenge,” he warned.
“Smaller operators will definitely find it more challenging to respond to significant tax increases because they tend to have fewer options to absorb or mitigate sudden cost increases. It’s important to remember that most gambling taxes are levied on gross or net gaming revenue, which means they’re calculated before offsetting operational and marketing costs, unlike traditional corporate income taxes.
“Sadly, if smaller and independent operators suffer, it risks making the market less competitive and less innovative, as well as hurting economic growth and jobs. The most effective way to avoid this is not to increase taxes.”
