Chancellor George Osborne is expected to announce a formal consultation into levying a point-of-consumption tax on online gambling in today’s Budget.
The UK Treasury announced an informal review of the betting tax regime last July, a few days after the Department for Culture, Media and Sport (DCMS) confirmed online operators would be required to obtain a licence from regulator the Gambling Commission to continue in the UK market.
The new rules, which would see operators only pay UK tax on bets placed by UK punters, are likely to require primary legislation. Draft legislation is slated for publication this autumn, with a view to final legislation being included in the Finance Act 2013 and the new rules coming into effect in 2014.
DCMS justified the overhaul of the UK’s licensing and regulatory regime, as it had to under EU law, on the basis that the existing framework was not providing consistent protection for UK consumers. At present, operators licensed in EEA Member States, Gibraltar and the UK government’s “white list” of approved jurisdictions (the Isle of Man, Alderney, Antigua & Barbuda and Tasmania) can transact with British consumers and advertise in the UK.
However, the Treasury announcing its review just a few days later merely served to confirm the suspicions of many within the industry that the licensing requirement was introduced merely to pave the way for the government to introduce a new betting tax regime.
Gordon Brown’s final act as chancellor in 2007 to set the tax rate at 15% of gross profits for all online gaming businesses in the UK resulted in Ladbrokes, William Hill and Betfair subsequently relocating their online operations to Gibraltar in order to better compete against operators targeting the UK from low-tax jurisdictions, as allowed under the current UK licensing framework.
The offshore exodus of a world-beating leisure industry to Gibraltar has left just Bet365 and Gala Coral standing as major UK operators with appreciable chunks of their online businesses licensed and taxed in the UK. Bet365 co-CEO John Coates told a DCMS hearing in November last year that paying 15% tax on all the company’s sports bets to HM Treasury on top of what it was going to paying in regulated markets such as Spain and Denmark from 2012 would be “unsustainable”.
The key issue to be decided by HM Treasury during the forthcoming consultancy period will be at what level to set the point-of-consumption tax. A Deloitte-authored report commissioned by William Hill, released in January, concluded that setting this at the current level of 15% GPT would drive smaller operators into deficit and result in an increase in the unlicensed grey/black market. These outcomes would not only defeat the government’s publicly stated aim to better protect consumers with the new regime, but also its private desire to raise much-needed taxes from the industry.
Bet365 betting is licensed by the UK Gambling Commission. To find out more about the UK’s largest sportsbook, visit Bet365.
Ouch !