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Gambling is an extremely popular pastime among people from all over the world. Some countries adopted more liberal views toward gambling, while others imposed tight restrictions on the provision of gambling services. With time passing, it seems that many countries opposing the regulation of the industry have started to change their stance on the matter mainly due to the financial benefits they could reap.
The gambling industry is often referred to as a cash cow. In fact, a healthy and well-regulated gambling market is vital for the governments and the players alike. On the one hand, the governments have their fair share from the revenue pie, while on the other hand, the players’ best interests are protected.
Realizing the industry’s growing potential, many countries introduced gambling tax hikes in an attempt to bridge budget gaps. Needless to say, such plans were not welcomed by casino operators. Industry experts warn that the introduction of steep taxes might trigger an exodus of licensed operators and stimulate illegal gambling activities.
Overview of the Different Tax Systems
Each jurisdiction that regulated the gambling industry adopted a specific tax regime. Based on information published on casinoguardian.co.uk, we can outline 4 major types of tax systems as described in the lines below:
● GGR-based tax system – this tax system takes into account only the net profits of a given casino. Expenditures are deducted from the overall income of the casino.
● Turnover-based tax system – the turnover tax system is more advantageous to the jurisdictions as opposed to the GGR-based tax system as a tax is imposed on the casino’s total turnover. This means that expenditures such as the winnings paid to the players are not deducted from the calculation.
● Point of Consumption tax system – it requires operators to pay taxes on their GGR to the jurisdictions they are supplying with gambling services. This means that if a given operator targets 3 markets, it needs to pay taxes to the governments of the 3 jurisdictions.
● Point of Supply tax system – casinos operating under this tax system pay taxes on their
GGR only to the jurisdiction that issued their license. This type of tax system is
considered to be less fair. Hence, many authorities decided to introduce the point of consumption tax system.
Recently Introduced Tax Hikes
Many countries reported a dramatic increase in their gross gaming revenues. Authorities did not remain indifferent to the mouth-watering figures and decided to implement tax hikes. According to this report by Casino Guardian, some jurisdictions that introduced tax hikes include Latvia, the Czech Republic, Italy, and others.
As for Latvia, the tax per gambling table reached $28,080, while the tax per slot machine was increased to $5,172 on an annual basis. Players should be informed that winnings above $3,000 are taxed at 23%, and earnings exceeding $55,000 are subject to a 31.4% tax.
The Chech Republic implemented an interesting gambling tax system based on how harmful a particular game is considered to be. The games included in the “most harmful” category, and more precisely gaming machines, are taxed at 38%. The tax on lottery, bingo, and live dealer games is set at 30%. Fixed-odds betting and pari-mutuel betting are considered the least harmful forms of gambling, being subject to a 25% tax. Italy, on the other hand, introduced a 0.5% turnover tax on sports betting in October 2020. The recent tax hike is projected to raise €90 million. The Italian authorities announced that the turnover tax is a temporary measure and it will be removed by the end of 2021. In 2019, the country adopted a series of gambling tax hikes.
From 1st January 2019, online casino operators need to pay 25% of their gross gaming revenue on online casino and bingo, up from the previous rate of 20%. Fixed odds betting machines are taxed at 24% of GGR, having been taxed at 22% previously.
Countries Planning to Introduce Gambling Tax Hikes
In 2020, the Danish government revealed its plans to introduce a tax hike on online gambling operations from 20% up to 28%, representing a 40% increase. Industry experts warn that such a steep tax hike might prompt the provision of illegal gambling operations. At the moment of writing this article, the tax increase has not yet been adopted.
Argentina is the other country that announced its plans to implement a gambling tax hike in 2021. Under the new tax regime, online casino operators will need to pay a 5% tax on each bet and game of chance. The tax hike represents an effective 150% rise which might lead to licensed casino operators rushing through the doors.
Closing Thoughts
Gambling taxes are used to fund initiatives such as healthcare, education, and others. Many countries are trying to gain maximum benefits from the thriving online gambling industry, thus adopting gambling tax hikes. However, lawmakers should be careful when implementing new tax regimes as too steep taxes might produce negative effects on the gambling industry.
We have witnessed similar scenarios of lawmakers implementing drastic gambling tax increases and the result is all the same – licensed and law-abiding operators leaving the market and players being attracted by offshore operators.
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