The Remote Gambling Association (RGA) has restated its view that (i) a rate of 15% for the new point of consumption tax is too high; and (ii) the regime still does not appear to make allowances for bonuses and incentives. This heightens the risk that British licensees will lose significant market share to black market operators and that this will undermine the regulatory objectives of DCMS and the Gambling Commission.
The RGA has made statement after today’s UK budget saw no change in the 15% Remote Gaming Duty rate. The Government is going ahead with its proposal to introduce a point of consumption tax for remote gambling and has included the details in the draft Finance Bill. From December 2014 operators will have to pay 15% duty on the gross profits they make from bets placed by customers who are located in the UK.
The RGA argued that all of the economic analysis that has been undertaken indicates that if the tax burden is too high then there is a serious risk that this will lead to a reduction in value and choice for consumers. This could act as an incentive for them to seek out non-licensed companies who choose to operate outside of the British regulatory and tax regime. If that happens it would seriously undermine the objectives of the British licensing regime.
The Culture, Media and Sport Committee’s pre-legislative scrutiny of the proposed regulatory reforms stated that: “in setting a tax rate for remote gambling, the Treasury should bear in mind that too high a rate would be liable to drive customers and companies into the unregulated, black market.” The Government does not appear to have taken account of their views.
In September 2013, the RGA commissioned leading economic consultants, KPMG, to test the economic impact of the proposed point of consumption tax on the British online gambling market. They concluded that:
“The dangers of introducing the proposed rate of 15 per cent immediately may be:
- firms are unable to recover their costs and either go out of business or are forced to operate in the grey market; and / or
- a very large number of UK customers switch to buying gambling products from offshore duty avoiding providers because they are able to offer lower priced, more attractive, products.
- If either of these come to pass, then it may be difficult to reverse these consequences with a subsequent reduction in the tax rate.”
Clive Hawkswood, Chief Executive of the RGA said: “We have repeatedly said that the reason that the vast majority of well-known British companies operate from other jurisdictions is that the UK tax burden is unreasonably heavy and makes it very difficult to compete in the international market. This new regime has given the Government the perfect opportunity to correct past mistakes and it is very worrying that despite all the evidence it has not done so.
“Not only KPMG, but other respected experts at PwC and Deloitte, have all reached the same conclusion that any rate above 10% GPT is not sustainable in the long term. We cannot make the case any more clearly. We will continue to engage with HM Treasury in pursuit of what we believe should be the common objective of establishing a viable long term UK market where licensed and tax-paying companies can not only survive but thrive.”
Hawkswood was also perturbed by Chancellor George Osborne’s view of a Levy replacement. The Chancellor said: “We will also extend the horserace betting levy to bookmakers who are based offshore. And we’ll look at wider levy reform and at introducing a ‘racing right’ to support the sport.”
Hawkswood commented: “It was extremely disturbing that the Chancellor referred today to the establishment of a ‘Racing Right for horseracing’. We understand that this is just one of the options that will be under consideration, but it is one that will inevitably be opposed.”