What's next? Offshore speakeasys for the 2.45 at Chepstow?
It’s a new year and everyone is full of new and exciting plans. Including the government, whose new plans to tax betting could create an unregulated ‘grey market’* that benefits no-one but murky offshore operators. Still, it’s the bookmakers’ own fault…
Back in July, gambling minister** John Penrose announced plans to force all betting operators to obtain a licence from the UK's Gambling Commission in order to take bets placed from UK consumers, regardless of where the operators themselves are based. Spotting a golden opportunity, the Treasury subsequently announced plans to levy a ‘point of consumption’ POC tax on betting operators on remote transactions placed by UK consumers.
The problem, of course, is tax avoidance. UK based betting operators pay 15% tax based on gross profits on bets, but offshore providers in possession of a gambling licence are not subject to UK tax at all (although they may be liable for foreign taxes). As a result, many high street bookmakers, including Ladbrokes and William Hill, have moved their online operations abroad to avoid tax on profits earned. Separately, UK bookmakers must also currently pay 10.75% levy on gross profits taken on horse racing bets.
Now, research commissioned by William Hill (yes one of those sneaky operators who have brought about this series of events) suggests that "Under a reasonable set of assumptions, and in the absence of effective enforcement procedures, levying a 5% POC tax would distort competition leading as much as 13% of the UK online gambling consumer revenues moving into the grey market” A 10% POC tax could result in up to 27% of online consumer bets being placed in unregulated markets and if the POC tax level is set at 15% as many as 40% of punters could turn to unregulated markets, the study also said. The POC tax could also reduce the UK online betting market owing to smaller companies exiting the market and others cutting back on their marketing expenditure.
Under the current rules, as contained in the Gambling Act, foreign companies must be licensed in certain 'white-listed' jurisdictions in order to operate within the UK. At the moment, any gambling operator which wants to offer its services in the UK must be licensed or regulated by one of the states approved by the Gambling Commission.
However, while a licence would allow offshore operators to offer its services in the UK, there is no legal restriction which would currently prevent such foreign sorts from legally accepting betting transactions from UK consumers. The so-called ‘grey market’
In other countries where online betting takes place currently, a number of enforcement measures are used to ensure regulation of the market place, generating "mixed" results, according to the study. Such measures include using technology to block consumer access to illegal or unlicensed websites, preventing banks from transferring funds to specific sites, finding directors of gambling operators criminally liable for prohibited activities and either totally banning or reducing the scope of advertising for online gambling.
But what does this mean for consumers like you dear Bitterwallet readers? This is a corporate, rather than individual gambler tax, and it could be argued that the betting companies would not be able to pass on this cost to the punters for risk of their odds becoming uncompetitive. But if all but the biggest operators are pushed out of the market, that leaves those with gambling money burning a hole in their pocket with less choice, and less competitive odds. Of course, gambling on the grey market could therefore prove more lucrative, but without licensing laws, is your ante protected?
*in the olden days this used to be called a black market. Perhaps grey really is the new black.
** presumably he is in charge of gambling, not just a minister who likes betting.