Portugual Forms Panel to Review Online Gambling Tax Rates
Government officials in Portugual are reconsidering the country’s huge online gambling tax in an effort to spur more foreign investment in the country’s iGaming industry. Portugual appointed a 6-member panel to study the country’s gambling taxes and make recommendations on changes, if needed.
The panel members are drawn from the country’s gambling regulator, Servico de Regulacao Inspecao de Jogos (SRIJ), and several ministries with connections to the gambling industry. Each of four top ministries will have a position on the gambling panel: The Ministry of Finance, Ministery of Tourism, Ministry of Labour, and Ministry of Economy.
Portugal instituted the gambling taxes in 2015, when an effort was made to liberalize the online gaming market. Since then, SRIJ has licensed 16 gaming groups to operate legally inside Portugal.
The problem is, the tax rate is incredibly high. Online sports betting is taxed between 8% to 16% on turnover, while online poker and casinos are taxed at a rate between 15% and 30% on turnover. It is unworthy of the government that long ago founded the Macau gambling enclave that turned into the world’s largest casino gaming destination.
Taxes on Turnover — Not Revenues
Those numbers sound like they’re in line with most other European countries’ online gambling taxes, until you read over it a second time. The taxes are on turnover, not revenues.
“Turnover” is the term used for the action in sports betting — the total amount of money wagered. Sports betting has a low margin, so a bookmaker tends to make a small percentage of revenues based on the turnover.
44% Effective Tax Rate
After 4 years of operation, it turns out the effective tax rate is around 44.6%. Such high taxes make it next to impossible for a betting operator to make a profit, once you account for service costs, labor costs, and debt costs on the original investment.
A closer look at the numbers show it’s worth than generally reported. If a sports betting operator pays a 16% turnover tax, it is actually paying an estimate 60% of its gross gaming revenues to the Portuguese government.
Portuguese Online Gambling Revenues
Despite the high tax rates, Portugal’s online sports betting sites are still making the lion’s share of the revenues. Using the latest published data, online sports betting generated €68.1 million in 2017, while online casinos made €54.4 million in the same year.
Online poker made a marginal amount, despite signing a poker liquidity sharing deal with France, Spain, and Italy a couple of years ago.
Comparing Portugal to New Jersey
As a way of comparison, New Jersey generated nearly $300 million a year in taxes in 2018 from online casinos and poker — and 7 months of mobile sports betting (on certain sites). New Jersey has a population of a little over 9 million people, while Portugal’s population is 10.31 million.
In short, Portugal should be generating tax revenues comparable to New Jersey, especially considering it is part of a poker liquidity sharing arrangement that contains over 190 million potential card players. By setting a tax rate so high that few operators even bother to invest, Portugal is costing itself tax revenues.
After several years to review the data, that has become obvious to the officials who instituted the tax. Somehow, lawmakers substituted turnover for revenues in the 2015 Portuguese online gambling law. It might take a panel to right the oversight, but it should be coming in the next year or so.