Source: Janine Berndsdorf¸ PKF Malta¸ 11 January 2012
As “The Telegraph” reported¸ the efforts of the government for a point of consumption (POC) tax on online gambling could backfire. A confidential report by Deloitte warns against the impacts with punters being driven to unregulated sites and the smaller operators being forced out of the market.
A study conducted by accountants Deloitte and commissioned by William Hill¸ concludes that if the UK government goes ahead with plans to charge a 10 per cent point of consumption tax on online gambling¸ it may produce the opposite effect and would seriously hurt the Government’s “consumer protection policy objectives”. According to the report 27 per cent of the current revenues would disappear into the “grey”¸ or unregulated¸ market.
At present UK consumers spend about £1.7bn a year with online gambling companies¸ which correspond to approximately 18 per cent of total UK gambling revenues. If the government increases the proposed tax to 15 per cent¸ as much as 40 per cent of the online gambling revenues would get lost. Furthermore¸ a point of consumption tax could also harm the UK online betting market as smaller companies would be exiting the market and others cutting back on their marketing.
“Under a reasonable set of assumptions¸ and in the absence of effective enforcement procedures¸ a 5 per cent POC tax would distort competition leading as much as 13% of the UK online gambling consumer revenues moving into the grey market. Up to 27% of business could move into the grey market at a 10 per cent POC tax rate¸” it said.
In July¸ John Penrose¸ the minister responsible for gambling¸ announced efforts to review the UK tax regime on remote gambling in order to amend the Gambling Act. In this way all betting operators will be obliged to obtain a licence from the UK’s Gambling Commission to take bets placed from UK consumers¸ regardless of where the operators themselves are based.
The situation in the UK is presently like this: Gambling operators that are located in the UK have to pay a 15 per cent gross profits tax which the government levies on them. In this way¸ many gambling groups such as William Hill moved their online activities to Gibraltar and the Isle of Man in order to escape the British gambling tax. Under the Gambling Act¸ foreign companies must currently be licensed in certain “white-listed” jurisdictions in order to operate within the UK. Gibraltar for example is on the “white list” of the British Gaming Commission and therefore¸ operators who obtain such a licence are allowed to take bets placed from UK consumers. Furthermore¸ offshore operators do not require a licence in order to legally operate within the UK.
Penrose said that it was “unfair” that overseas-based operators could take bets from within the UK “without bearing a fair share of the costs of regulation” or of the treatment of problem gambling. Therefore¸ he proposed that any gaming operator offering bets to UK gamblers first needs to obtain a licence and is forced to pay the gross profit tax. At the moment there is a fierce debate whether the rate of the tax should be 10 or 15 per cent.