New UK Online Gambling Tax could foster �grey� markets

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”.[1]  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.[2] 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.[3]

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.[4]

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.[5] 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.

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