Consult industry over tax rate and “ring fencing” of funds, say MPs

The UK Treasury “still needs to work with industry stakeholders” over the level at which to set the forthcoming point-of-consumption (POC) tax for online gambling, MPs have said.

In its report on the 2005 Gambling Act published today, the Commons Culture, Media and Sport Committee welcomed the introduction of a POC tax to address “the failure” of the UK government “to set remote gambling taxation at a level at which online operators could remain within the UK and regulated by the Gambling Commission”, which has led to all but one of the UK major operators relocating their online businesses offshore.

However, said the Committee, despite its recent consultation on the design of the tax policy, “the Treasury still needs to work with industry stakeholders to establish the correct level for online gambling taxation, taking into account the need to encourage companies to accept UK regulation and taxation and to discourage the formation of a grey market.”

MPs also recommended UK regulator the Gambling Commission consult the online gaming industry as to what form of “ring fencing or protection of player accounts, by all UK-regulated online gambling operators, would be a proportionate response” to concerns raised by last year’s Full Tilt episode, in which the Alderney-licensed poker room closed down owing hundreds of millions of dollars to players after proving able to deceive its regulator as to its financial position over a prolonged time period.

Regarding the tax issue, the Committee noted the contrasting evidence presented by the UK’s leading operators. William Hill, its online licence relocated to Gibraltar, presented a Deloitte-produced report to support its view that the POC tax “had the potential to prompt significant growth in the size of the grey market”, and that levying this at the existing level of 15% of gross profit could lead to 40% of the industry leaving the UK market. bet365, the only major UK online bookmaker with a sizeable portion of its business taxed in the UK – co-CEO John Coates told the inquiry it paid around £130m in annual taxes of which betting duty accounted for broadly 50% of this – did not call for a cut in the 15% rate to stay competitive, and was “unequivocal in its support for the general change of policy.”

MPs also argued that a consequence of currently only taxing and regulating UK-based operators meant UK customers “could then be at risk from unscrupulous operators” operating in the “grey market” of less regulated or unregulated jurisdictions, referring to those located outside of the UK, EU and the government’s “white list” of approved jurisdictions currently allowed to advertise in the UK. However, the only “high-profile case” of a licensed operator failing to protect its players – and their funds – raised by the Committee was that of Full Tilt Poker, regulated by the white-listed Alderney Gambling Control Commission, whose executive director Andre Wilsenach submitted evidence to the inquiry in January of this year.

Regarding the Full Tilt case, “which caused us considerable anxiety”, MPs said: “We questioned the Minister about this, and he responded that the Gambling Commission considered it would be too burdensome and would render the industry too uncompetitive to require operators to hold a separate players’ winning account, or appropriate insurance, or to provide a guarantee that repayment to players could be made at all times.” The Minister for Tourism and Heritage, John Penrose, also acknowledged, according to the report, “that players gambling online often took no account of whether their funds were protected”.

By way of a solution to these issues, the Select Committee recommended two responses. First, the Gambling Commission should consider “introducing a kite-marketing system for gambling websites, indicating which sites are regulated in the UK”, which it argued would raise players’ awareness of the potential risk to their funds and “could protect consumers by encouraging them to use UK-regulated sites and by incentivising suppliers to choose to be regulated here.”

Second, concluded MPs, while the Committee recognised “the concerns of well-managed, existing operators about the potential costs and burdens of legally separating players’ funds”, the Gambling Commission should, in the light of the Full Tilt case, “consult the industry as to what form of ‘ring fencing’ or protection of player accounts, by all UK-regulated online gambling operators, would be a proportionate response to the worries arising from this unfortunate episode.”

Casino Choice journalist

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