Should Betting Companies Pay More Tax?
As the economic fallout from Covid-19 continues to impact our daily lives, governments around the world will, if they are worth voting for, be looking for the green shoots of financial revival and ways to get our economics back on track.
In the UK, questions are being asked about why the lowest paid are required to pay more tax than their employers, or other corporate giants. Amazon, Apple, Google are all known to legally avoid tax, as are some of the UK’s mega media corporations. But all of these are roundly criticised by the public on a regular basis even if the government won’t enforce the necessary change.
However, one industry seemingly avoids a lot of the scorn aimed at others is gambling. Given that gambling addiction in the UK can cause enormous stress on the NHS is this fair?
Currently gambling companies pay corporation tax, business rates and employees pay income tax if based in the UK (but most are not) and a 21% point of consumption tax on online revenue from UK players (increased from 15% in 2019). Some question whether this is enough but opponents to any tax rises point to the fact that higher taxation could drive a black market.
Lower Tax Jurisdictions
Back in August 2020, a report in the Daily Mail accused Britain’s biggest gambling firms of having dozens of offshoots in tax havens.
This is hardly news to anyone who has followed the industry but bet365, Flutter Entertainment, GVC Holdings and William Hill all list subsidiaries in offshore locations such as Malta, Gibraltar and the Isle of Man. Indeed, many keep a majority workforce in these locations, famously so in the case of Gibraltar and Malta where the corporation tax is 5% and 10% respectively.
However, for an industry that generates £5 billion a year to only put a tiny amount of their profits back into the national pot cannot be good news for the UK Treasury.
The report claims that, in the last two years, bet365 paid less than 13% of their profits of £1.4 billion over the same period. The rate of corporation tax in the UK is 19% which these gaming operators are able to bypass because of the difference in tax rate of overseas subsidiaries.
Breaking it down, William Hill paid 12% in corporation tax and GVC Holdings, owners of Ladbrokes/Coral as well as Bwin, paid just 3% between 2012 and 2015. Over this time, GVC’s profits prior to their acquisition of Bwin Party and Ladbrokes and Coral, posted profits of £81.5 million. Since their accumulation of these operators they have become a FTSE registered company worth £4.2 billion globally.
Similarly, Flutter Entertainment, parent company of Paddy Power and Betfair, paid 16% in 2019 before their merger with the Stars Group, owners of SkyBet and PokerStars, while 32Red, under the stewardship of The Kindred Group, paid just 3% (£812,000) between 2006 and 2016.
Should Gambling Companies Pay More Tax?
Recognising that there is a disproportionate problem with the numbers, the Government brought in remote gaming duty, named the Point Of Consumption Tax (POCT), of 15% in 2014. In 2019, the POCT was raised to 21% which again led to operators such as bet365 exiting the UK.
The introduction of the POCT followed Gordon Brown’s scrapping of betting duties when Labour were in power and they brought in a 10% levy on bets on condition of a gentleman’s agreement that the betting companies would not move their operations out to low tax jurisdictions.
Then BetVictor reneged on the deal and relocated leaving others, almost all of them, to follow suit and, either full in part, join the exodus and relocate to Gibraltar.
As Brexit and Coronavirus, begin to really bite down hard on the UK’s budget, online and mobile gambling, which raked in about £5 billion in 2019, is as good a place as any to start to help us pick up the pieces and get the economy moving again.
Tax Rises Could Drive A Black Market & Exodus
The opponents to tax rises cite the black market as one of the biggest reasons not to increase tax for betting, casino and bingo sites. If tax is increased too much then the draw of unlicensed operators may increase the number of people that gamble illegally.
Currently the black market represents just over 1% of gambling turnover and that is in spite of the fact the UK has legal ways to gamble in all formats. Betting with unlicensed operators is highly risky and not advisable but higher taxes for licensed brands could mean people take more risks to go after better odds (unlicensed brands can provide better prices simply because they are not paying tax). Unlicensed brands also do not care so much about protecting vulnerable people and where money comes from, which could make the industry more unsafe as a whole.
Effectively there is a fine balance between taxing gambling companies appropriately versus not taxing them so much that the products they offer become too poor in value compared to those offering the same thing illegally. While taking bets from UK customers is illegal without a license many of the unscrupulous agents are based in jurisdictions where they are immune. The UKGC cannot prevent illegal sites given the internet is global and the onus is on the customer to make sure they gamble with licensed operators.
Another side effect of high taxation would be an exodus from the UK market. This has already happened to a degree following the POCT tax increase in 2019 with brands such as ComeOn, Royal Panda and others deciding the UK is too heavily regulated and taxed. Less brands means less competition and with the biggest brands now packaged up in multi-billion pound groups such as GVC and Flutter/Stars there is a big risk this could lead to monopolies that ultimately provide worse value to the customer.