The gambling industry has been thriving over the last years. When it comes to gambling laws, each country crafted its framework regarding the legality of this pastime. While some jurisdictions took tough measures to ban gambling, others decided to benefit from its profitability and regulate the industry.
Gambling has been viewed as a “cash dispenser”. Often, countries that were strong opponents of gambling changed their approach in an attempt to decrease gaps in the economy and create new job opportunities. The tax regime varies greatly between the different countries that legalized the gambling industry. In some countries, only the operators are required to pay taxes on their profits, while in others the players also need to pay taxes on their winnings.
Overview – Why Are Gambling Operators Taxed?
The tax regime is what makes a given market more or less attractive to operators. We have witnessed scenarios in which lawmakers levy burdensome taxes on gambling activities resulting in licensed and reputable operators leaving the market. Hence, the adequate tax system plays a key role in the prosperity of the gambling industry in a given jurisdiction.
| Country | Previous Tax Rates |
|---|---|
| Latvia | €23,400 per table annually €4,164 per gaming machine annually |
| The Czech Republic | 23% on lottery, bingo, and live games 23% on fixed-odds betting and pari-mutuel betting 35% on gaming machines |
| Italy | 20% on online casino and bingo operations 22% on online fixed-odds betting 18% on land-based sports betting operations 20% on virtual sports betting 5.5% on video lottery terminals 17.50% on amusement with prizes |
| Denmark | 20% on online gambling activities |
| Argentina | 2% on online gambling |
The income that a given country generates from taxes on gambling activities is usually used to fund public programs/charities, encourage economic growth and development, mitigate the effects of gambling-related harm, and combat gambling addiction.
In the lines below, our expert team designed an infographic set to provide information about the countries that recently introduced or are on the verge of introducing tax hikes on gambling.
GGR-Based and Turnover-Based Taxing Systems
When it comes to tax systems, it is inevitable to outline the four major internet gambling licensing models as the taxation models take place in the form of a licensing fee that can be calculated as a percentage of the Gross Gaming Revenue or the turnover.
Some countries adopted the so-called monopoly models, meaning that the gambling activities are operated by state, provincial, or national governments. The other internet gambling licensing model is the free market system, where there is no limit on the number of licenses that can be issued and operators need to pay licensing fees and ongoing costs. Some jurisdictions decided to assume the limited free market models, under which the number of Internet gambling licenses is limited by law. The last model is a combination of all of the aforementioned, hence it is referred to as a hybrid model.
GGR (Gross Gaming Revenue) is the net profit of a given gambling company. It is the total amount of money players wagered minus the amount of money paid to the players. Additional deductions might occur for expenses for software licensing, development costs, chargebacks on credit cards, and others.
Countries where the land-based casinos are taxed according to the GGR-based model, usually adopt the same tax regime for online gambling operations. The main advantage of the GGR-based tax regime is that it takes into account only the operators’ gaming profits. In other words, this tax regime limits the business risk operators take.
Unlike the GGR-based taxing system, the turnover tax model takes into account all the money players wagered before any winnings are paid. In other words, operators pay a certain percentage on the amounts deposited by players. Jurisdictions that adopted a turnover-based taxing system usually levy a lower percentage compared to the rates levied on operators that are taxed according to the GGR-based taxing model.
The turnover-based taxing system, also known as a deposit tax model, seems to be the better option for the regulators as taxes are collected in advance, meaning that the revenue risk for the jurisdictions is lower. In addition to that, the turnover-based tax regime is more straightforward compared to the GGR-based tax system as the former is game-neutral. This means that regardless of the types of games offered by a given operator, the tax rate remains the same. Another advantage of the turnover-based taxing regime is the reduced transaction costs.
From the operators’ perspective, the GGR-based tax system is better than the turnover-based tax regime as it lowers the business risk. What is more, some individuals deposit funds into their gambling account and then immediately withdraw the funds without activity, which causes economic losses to operators taxed under the turnover-based regime. Even if the operators impose fees for early termination of customer accounts, such a practice may prevent legitimate players from using such operators’ websites.
Point of Consumption vs. Point of Supply Taxing System
When it comes to online gambling, we can outline two other types of taxing systems – point of consumption (POC) and point of supply (POS). Provided that the remote gambling activities are taxed according to the POS system, it means that the operators supplying from a given jurisdiction pay tax on their GGR or turnover to that particular jurisdiction, while offshore operators supplying the residents from the same given jurisdiction pay no gambling taxes to that particular jurisdiction. In other words, operators can avoid gambling taxes by supplying from abroad.
Hence, many jurisdictions decided to adopt the POC model as it encompasses not only domestic operators but also those that are based abroad. Even though some industry insiders are concerned that the POC tax regime might have a negative effect on the competition between operators, this system helps authorities to level the conditions related to the tax liability for domestic and offshore operators.
It seems that a growing number of countries are eyeing the opportunity to move from POS to POC tax system as it seems to be fairer and more profitable. Under the POS tax regime, offshore operators drain the economy by avoiding taxes. In 2018, Queensland followed the example of South Australia and Victoria and became the third Australian state to adopt the POC tax system. The UK is yet another country that implemented this tax regime a few years ago.
Higher Taxes for Latvia’s Landbased Casinos in 2020
Gambling has been legal in Latvia ever since 1998 and created the first part of its gambling regulatory authority called the Lotteries and Gambling Supervision Inspection of the Republic of Latvia. In 2006, the country implemented the Gambling and Lottery Law that legalized online gambling. Under the new piece of legislation, only operators licensed by the Latvian gambling regulator are allowed to provide their services on Latvian soil.
Despite the strict regulations, the gambling industry in Latvia keeps on gaining traction. In 2015, it was reported that the total industry revenues topped at €210 million. Slot machines seem to be the major source of revenue, contributing €173 million to the total gambling revenues in 2015.
In October 2019, news emerged on the surface that Latvia mulls over gambling tax hikes. A month later, the Latvian Parliament passed the new bill as part of their 2020 budget and it came into effect on 1st January 2020. Under the new bill, the tax per gambling table increases from the previous €23,400 to €28,080 on an annual basis. Furthermore, the tax on slot machines jumps from €4,164 to €5,172 per gaming machine annually.
Under the new legislation, the Latvian government is to collect 90% of the total revenue, while only 10% will be distributed among the local municipalities that host the gambling establishments. Previously, the state received 75% of the total revenue, while the local municipalities shared the other 25%.
Due to the Covid-19 pandemic, the Baltic country announced its decision to ban all land-based and online gambling activities until 14th April, but the ban was prolonged until June. This resulted in a significant drop in gambling revenue and a negative impact on the Latvian economy.
According to statistics released by the Lotteries and Gambling Supervisory Inspection, a total of €129.2 million was generated from the operations of all licensed casino operatorsstr for the period from January 2020 to September 2020. This represents a decline of 45.5% compared to the figures for the same period last year.
The Czech Republic Introduces a Three-Tier Tax System
Under the Gambling Act of 1990, gambling is legal in the Czech Republic. This piece of legislation has been amended multiple times to address the constantly changing demand for gambling services. The Ministry of Finance is the authority tasked with overseeing the industry and issuing licenses to operators. What is important to mention is that the individual municipalities are allowed to implement bans on certain gambling activities.
Since the introduction of a law on digital gambling in 2012 and on interactive gambling in 2016, remote gambling is also legal throughout the Czech Republic. Based on statistics presented by Directorate-General for Finance (GFR), the casino gaming revenue in 2019 witnessed a 16% growth compared to the gaming revenue from 2018.
Even though players do not need to pay taxes on their earnings from gambling activities, the taxes imposed on the operators are quite burdensome. In addition to that, in 2019, the country’s lawmakers announced their plans to introduce a tax hike with the arrival of 2020. Under the new tax regime, the games are divided into 3 categories based on the level of their harmful influence as perceived by the government.
The newly introduced legislation replaces the previous flat tax of 23% of gross gaming revenue that applied to all gambling activities except the electronic gaming machines that were taxed at 35% of GGR. After the implementation of the new tax regime that came into effect on 1st January 2020, lottery, bingo, and live games are taxed at 30%. The tax on fixed-odds betting and pari-mutuel betting rises to 25%, while the tax on gaming machines is 38%.
In September 2020, it was announced that the country’s lawmakers approved a decree to ban all gambling machines such as slot machines and video lottery terminals in Prague from 2024. The decision came as part of the lawmakers’ attempt to curb gambling-related problems. It was explained that the government considers the gaming machines to be one of the most dangerous forms of gambling.
Italy with Turnover Taxes on Sports Betting Operations
Gambling in Italy has its roots as far back as the Roman Empire. A curious fact is that the country is home to the world’s first gambling house – Ridotto. Nowadays, Italy is the second-largest gambling market in Europe. Most forms of gambling were legal by the end of 2011. What is most notable about the Italian gambling legislation is that it makes a difference between games of chance and games of skill.
Under the Italian legal framework, remote gambling operators are required to acquire a license issued from the country’s regulatory entity Agenzia delle Dogane e dei Monopoli (ADM) to legally operate on the lucrative Italian market. The process of obtaining an Italian license is not the most straightforward and affordable, but it certainly pays to have it.
Italy was the most affected country by the coronavirus pandemic in Europe. The country’s officials needed to take tough measures to prevent the spread of the contagious disease and protect the people. As a result, the country’s economy suffered an unprecedented slowdown. Many business sectors also experienced the negative effects of the Covid-19 pandemic.
The gambling industry, and more precisely its land-based branch, was among the sectors that suffered massive financial losses due to the two-month lockdown in Italy. It seems that the hard period will continue. In October 2020, only a few months after the reopening of the casinos in Italy, it was announced that the gambling facilities will close once again due to the resurgence of the virus.
To mitigate the consequences of the lockdown and support the recovery of the sports system, Italy enacted a turnover tax on sports betting in May 2020. Initially, the Italian Football Federation suggested a 1% tax increase on sports betting, but the lawmakers proposed a 0.75% increase. The new turnover tax evoked a wave of negative reactions and the lawmakers finally agreed to levy a 0.5% tax on the turnover sports betting licensees generate.
The authorities tried to cool down the tense atmosphere by explaining that the turnover tax is a temporary measure that will remain in place by the end of 2021. The Italian lawmakers hope to raise a total of €90 million from the new tax. On top of that, the government introduced a series of gambling tax hikes and an advertising ban in 2019.
Denmark Ups Online Gambling Taxes to 28% in 2021
For many years, the Danish gambling market was monopolized by the state-owned company Danske Spil. However, this monopoly turned out to be not so efficient as offshore gambling operators were accepting players from Denmark. In 2010, Danish lawmakers started to work on a new piece of legislation to liberalize the market. The Danish Gambling Act came into effect on 1st January 2012, which was a historic milestone in the development of the gambling industry in Denmark.
Even though Danske Spil kept its monopoly over lotteries, animal racing, and others for quite some time, remote gambling operators were allowed to enter the Danish market and offer their gambling services. To do so, they need to acquire a license from the Danish gambling regulator, Spillemyndigheden. The change in the country’s gambling legislation led to a drastic increase in the revenues generated from gambling activities.
Based on the figures presented by statista.com, the GGR in Denmark from 2012 to 2019 witnessed a steady growth from $4.32 billion to $6.57 billion. Unfortunately, the country also reported a major gambling revenue stoop of 19.2% year-on-year in the first half of 2020 due to the Covid-19 pandemic. The Danish Gaming Authority unveiled that the gambling revenue from January 2020 to June 2020 sunk to €362.6 million.
In December 2019, it was announced that the country is to introduce an online gambling tax hike as part of its 2020 Finance Act expected to come into effect in 2021. The country revealed its plans to increase the online gambling tax rates from 20% to 28%, which represents a rise of 40%. The lawmakers explained that the new tax regime will affect only online gambling operators as the land-based casinos are already paying too much.
The drastic tax increase is expected to trigger an exodus of licensed operators. According to H2 Gambling Capital, the Danish gambling market will shrink by 25% and encourage players to choose offshore operators’ gambling websites. It was revealed that 16% of the Danish players prefer offshore gambling sites and experts forecast that this tendency will keep on increasing during 2021, reaching up to 24%.
Higher Taxes Loom over Argentina’s iGaming Sector in 2021
Gambling in Argentina is regulated by the 23 individual provinces as no federal laws govern the industry. This means that each province is allowed to craft its own regulatory framework. With regard to online gambling, the situation is the same – each province is authorized to create its own regulations.
Most of the provinces have already regulated the online gambling industry or are in the process of regulating it. In 2019, Buenos Aires Governor María Eugenia Vidal approved a regulatory decree to legalize online gambling throughout the capital. Only 8 provinces are not considering regulating the iGaming business due to political, religious, or cultural issues.
Buenos Aires, the capital city of Argentina, is an autonomous city that has its own government. Only 3 casinos can be found throughout the capital city, with 2 of them being floating. Casino de Trilenium is the third functioning casino that operates as a “racino” (a hybrid of a casino and a race track). It is one of the largest casinos in Latin America.
In 2019, it was announced that the country is about to hike the online gambling taxes from 2% to 5%. The new tax regime will come into force in 2021 after the majority of the Argentine Chamber of Deputies approved the National Budget that includes the increase of the online gambling tax rate.
Summary of the Taxing Trends in the Gambling Industry
Taxes are important for the economic prosperity of a country. Even though opinions on tax policies may significantly differ, the proper tax regime is the key to a healthy and functioning gambling industry. Based on what we have seen so far, we can conclude that the gambling taxes tend to increase. While some countries introduced optimal tax rates, others implemented drastic tax increases that may harm the industry.
However, it seems that the authorities of some countries are desperately trying to cover budget shortfalls by implementing higher taxes. This year the situation significantly deteriorated due to the Covid-19 pandemic that caused a severe budget crisis. Hence, the authorities of many countries saw good potential in the online gambling industry.
Unlike the operators of land-based gambling venues that experienced a steep drop in their revenues, the online gambling industry witnessed a dramatic rise amid Covid-19. Some jurisdictions decided to level the taxation rate for the online and offline gambling sector and implemented the point of consumption (POC) tax system to provide fairer conditions for all operators regardless of their location.
- Author
Harry Evans
