All indications show that a 15 percent POC Tax is too high, says operator body
The Remote Gambling Association (RGA) has reiterated its view that a rate of 15 percent for the new UK point of consumption (POC) tax is too high; and has expressed its concern that the regime still does not appear to make allowances for bonuses and incentives.
This heightens the risk that British licensees will lose significant market share to black market operators and that this will undermine the regulatory objectives of DCMS and the Gambling Commission, said the RGA.
Details confirmed by the draft Finance Bill firmly set a 15 percent duty payable by operators on the gross profits they make from bets placed by customers who are located in UK, effective from December 2014.
The RGA pointed out that all economic analysis undertaken on the issue indicate that if the tax burden is too high there could likely be a reduction in value and choice for consumers which may impel them to seek out non-licenced companies who choose to operate outside the proposed British regulatory and tax regime.
This point is supported by the Department of Culture, Media and Sport Committee's pre-legislative scrutiny which said: "in setting a tax rate for remote gambling, the Treasury should bear in mind that too high a rate would be liable to drive customers and companies into the unregulated, black market."
Late last year the RGA commissioned KPMG to test the economic impact of the 15 percent POC tax on the British online gambling market. Their findings were:
1. Firms are unable to recover their costs and either go out of business or are forced to operate in the grey market; and / or
2. A very large number of UK customers switch to buying gambling products from offshore duty avoiding providers because they are able to offer lower priced, more attractive, products.
Clive Hawkswood, Chief Executive of the RGA said:
"We have repeatedly said that the reason that the vast majority of well-known British companies operate from other jurisdictions is that the UK tax burden is unreasonably heavy and makes it very difficult to compete in the international market. This new regime has given the Government the perfect opportunity to correct past mistakes and it is very worrying that despite all the evidence it has not done so.
"Not only KPMG, but other respected experts at PwC and Deloitte, have all reached the same conclusion that any rate above 10 percent GPT is not sustainable in the long term. We cannot make the case any more clearly.
"We will continue to engage with HM Treasury in pursuit of what we believe should be the common objective of establishing a viable long term UK market where licensed and tax-paying companies can not only survive but thrive.'
"Finally, it was extremely disturbing that the Chancellor referred today to the establishment of a 'Racing Right for horseracing'. We understand that this is just one of the options that will be under consideration, but it is one that will inevitably be opposed."
In related news, UK Chancellor of Exchequer George Osborne, during his annual budget statement, announced an increase in tax on Fixed Odds Betting terminals (otherwise known as B2 gaming machines) from 20 percent to 25 percent which will come into effect on March 1, 2015.
The market reacted negatively to the announcement in respect of gambling firms such as Ladbrokes and William Hill's share prices, down 12.2 and 7.5 percent respectively.
Based on its 2013 B2 gaming machine gross wins, William Hill said if the increased tax rate had been applied on those results, it would have cost the company an additional GBP 16 million.
Barney Horn, indirect tax partner in the Deloitte betting and gaming group surmised: "It will increase operating costs and could lead to further consolidation in the market. Online gambling operators are unlikely to be able to pass on the costs to consumers, but could be forced to cut back on marketing and player promotions."
Additionally, the Government will consult on widening the horserace betting levy to include offshore bookmakers, it was confirmed in the statement.
Surprisingly, the Chancellor also announced a cut in bingo duty which will be slashed from 20 percent to 10 percent to encourage investment in the sector.
Rank Group chief executive, Ian Burke said: "Today's announcement is an important boost for Britain's bingo clubs, which provide a range of social and economic benefits for the communities they serve. By bringing bingo duty into line with other forms of gaming entertainment, the Government has created a basis for renewed investment and innovation."
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