BROWN'S BLUNDER

23 March 2007

"It's insane. They spend years deregulating the industry and then overtax it."

The much anticipated budget speech by UK Chancellor of the Exchequer Gordon Brown (see previous InfoPowa reports) was greeted with disappointment and even dismay by online gambling companies this week, and reaction in the British business media reflected this.

Reuters said that gambling firms and casino operators were left disappointed by Wednesday's budget after the Chancellor slapped higher tax on large casinos and did little to tempt Internet gambling onshore.

Internet gambling firms looking to locate back to Britain from tax havens such as Gibraltar and Cyprus were dismayed after Brown set the Remote Gaming Duty in line with land-based bookmakers and bingo firms at 15 percent.

Some had predicted it would be as low as 2 or 3 percent.

"The Remote Gaming Duty has been set breathtakingly high, it will do nothing to attract the existing offshore industry onshore and it may indeed have the contrary effect," said BDO Stoy Hayward tax principal Martin Dane.

"With the additional VAT and corporation tax for most companies, it would be almost impossible for a UK-based operation to compete with offshore businesses, especially those located in other EU jurisdictions," said Remote Gambling Association chairman John Coates.

"This decision means that the UK has effectively turned its back on the industry," he added.

However some online gaming firms were more sanguine. "It's not a surprise," said a spokesman for PartyGaming. "Allied with corporation tax at 28 percent, the new tax rate would mean any company coming to the UK would effectively be paying tax of 43 percent. Coming to the UK we would be giving away a big competitive advantage,” he added.
Land casino operators were also dealt a blow after Brown scrapped the lowest tax rate for the smallest casinos and created a new, higher, 50 percent tax band for the most profitable ones.

"I really get the feeling the government is trying to take the maximum rake out of this in terms of revenue raising," said Dane.

Leisure firm Rank warned that the changes would wipe 20 percent off the annual profits of its casinos.

It said profits of its Grosvenor Casinos, which brought in GBP 39.5 million in 2006, would fall by GBP 8 million a year as a result of the higher taxes, news that knocked Rank's shares more than 4 percent.

The move also means firms hoping to win the right to run any of the planned new wave of 17 Las Vegas-style casinos will have to do their sums again.

"It may well discourage operators from bidding (to run the new casinos)" said Deloitte Leisure partner Karen Potts.

"Some have probably been working on an effective tax rate of 20 to 25 percent of duty and I would think this change could well put that up as much as 25 percent."

The Independent says changes in gaming duties could cost casino operators GBP100 million over three years and will do little to encourage online gambling companies to relocate to the UK, quoting industry experts.

Internet gaming companies were hoping the Chancellor would set a tax rate at around 2 to 3 per cent to encourage them to move back to Britain from tax havens in Gibraltar, Malta and Alderney. However, the Remote Gaming Duty was set at 15 per cent, in line with that for bookmakers and bingo halls. Online gaming companies said the Chancellor had in effect shut the door on the industry.

The Remote Gambling Association, which represents the online industry, said it would now be almost impossible for a UK-based operation to compete with offshore businesses. Clive Hawkswood, its chief executive, said the Government "has missed a real opportunity to lead the way in terms of international regulatory standards".

The bookmaker Ladbrokes, which has remote gaming operations in Gibraltar, said it would be remaining offshore. Ciaran O'Brien, a spokesman, said of a move onshore: "You will just be disadvantaging yourself against operators in offshore jurisdictions."

The British Casino Association said the changes would cost operators GBP100 million over three years. "It will hit the smallest casinos... hardest with a knock-on effect for jobs and industry suppliers," said Penny Cobham, the chairman. "But all British casinos, which have the highest standards of probity and integrity in the world, will be affected."

The Telegraph reports that the gambling industry accused the Treasury of trying to reverse the Government's policy of liberalising the gambling laws through crude and "insane" tax increases.

Both casino operators and gaming websites said the tax increases undermined the Department for Culture Media and Sport's attempts to free up the gambling regime in the UK.

Damian Aspinall, owner of Aspinalls casino in Mayfair, London, said: "It's insane. They spend years deregulating the industry and then overtax it." The Treasury hopes to raise an extra GBP35 million a year from the increase in gaming duty. That is before the benefit from the 17 new casinos, including the supercasino.

The Telegraph says that the tax rate is a major disappointment for online companies. "The Government had hoped to gain tax revenues from offshore operators. A compromise was reached with the industry whereby the likes of PartyGaming or Ladbrokes.com could remain in Gibraltar. In return for a small amount of Remote Gaming Duty, they would be licensed and regulated by the UK authorities," it revealed.

The Times claims that Gordon Brown demonstrated his personal distaste for gambling with the new rates and taxes. "The Chancellor also revealed that the new tax on internet gambling sites based in Britain will be five times industry expectations, at 15 per cent," the newspaper reported.

"The move is a stark indication of Mr Brown’s much cooler attitude to gambling than Tony Blair, and has left the British industry reeling."

The Treasury defended the move, saying that it needed “to ensure that this vibrant and expanding sector continues to make a fair contribution to tax receipts”. It has calculated that this will raise GBP30 million this year and GBP35 million subsequently.

Other accountants said the higher than expected tax on internet gambling meant that such companies were unlikely to want to move to Britain. Martin Dane, of BDO Stoy Hayward, said: “This sounds the death knell for the Government’s aspiration to be the world leader in regulated remote gaming.”

Bingo operators said they had hoped for a VAT abolition to help to offset the effects of the smoking ban. Lady Cobham, chairman of the British Casino Association, which represents most domestic operators, said that the changes would cost operators GBP100 million over three years.

“This tax hike is yet another swipe at a great British industry and British jobs, and makes our vigorous pursuit of a judicial review of the Gambling Act all the more urgent.”

Hugo Swire, the Shadow Culture Secretary, said: “The Chancellor is now set to make hundreds of millions of pounds from new casinos. If he was really concerned about gambling addiction, this revenue would be ringfenced to help the vulnerable.”

Online Casino News courtesy of InfoPowa

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