UK Exchequer Considering 10% Hike on Point-of-Consumption Tax
UK Chancellor of the Exchequer Philip Hammond is considering a 10% tax hike on offshore gambling firms. Hammond needs to raise €1.13 billion and is considering offshore gaming operators as a good place to start.
The UK Exchequer would raise the current Point-of-Consumption tax from 15% to 25%. If Philip Hammond pushes through such a tax, it will send new shockwaves through the British gambling industry.
Already, UK-focused gaming companies were preparing for the 2019 imposition of more restrictive policies on fixed-odds betting terminals (FOBTs).
While British bettors currently can wager up to €100 per bet on an FOBT, the new law will cap the limit at €2.
2019 FOBTs Laws
FOBTs have become a controversial form of betting in the United Kingdom, as Labour MPs have derided them as the “crack cocaine of gambling” (a term used some years ago by American politicians about slot machines). FOBTs are thought to fuel problem gambling because of the repetitive nature of the bets, but the gaming machines are the key driver of revenues in the British betting shop industry.
A new Point-of-Consumption tax would exacerbate the issues UK gaming companies were planning to weather. To judge from public opinion on FOBTs and point-of-consumtpion taxes, popular sentiment in the UK is solidly against the gambling companies, though.
2014 Point-of-Consumption Tax
The British parliament enacted the Point-of-Consumption Tax (POC) in 2014 on all offshore gaming sites. The POC imposed a 15% tax rate on revenues collected from losses by UK gamblers by sites in Gibraltar, Malta, and elsewhere.
The idea of the 2014 law, which amended the 2005 Gambling Act, was to target British gaming companies that moved offices out of the United Kingdom to tax shelters like Gibraltar, Malta, or the Isle of Man. Instead of taxing a gaming group based on where it’s headquarters or site servers were located, the UK government decided to tax revenues based on where the money was won. Any revenues collected from a UK resident therefore received an additional 15% tax.
At the time, a whole host of London Stock Exchange-listed gaming firms and private betting brands complained about the 15% tax. British MPs and taxpayers alike took the complaints as the handiwork of greedy business people, but the imposition of the 15% tax led to a wave of consolidation, as a number of top UK-facing operators could not flourish in the new tax environment.
UK Gaming Companies Focus Overseas
Many of those operators began to focus operations elsewhere. William Hill, GVC Holdings, and Ladbrokes focused on growth in the Australian gaming market. The Interactive Gambling Amendment (IGA 2016) passed in August 2017 passed by the Australian Senate undercut those gaming groups, while point-of-consumption taxes of 8% to 15% imposed by three Australian state governments — those states being South Australia, Western Australia, and Victoria — also hurt the international operators in Australia.
William Hill hedged its bets by focusing on the United States sports betting market. William Hill US collected 108 of the 128 sportsbooks and betting shops in the state of Nevada. William Hill US also moved to build a sportsbook at Monmouth Park in Oceanport, New Jersey. The William Hill-Monmouth Park sportsbook was sued by the US sports leagues, which led to the landmark US Supreme Court decision which opened sports betting to all US states willing to legalize bookmaker activities at the state level.
This investment by William Hill proved to be much more profitable than the Australian one, at least potentially. GVC, Paddy Power-Betfair, and a host of the UK and European gaming companies now prepare to enter the US sports betting market.
Possible Effects of 2018 POC Tax
If Philip Hammond decides to go through with his tax hike on gaming companies, readers can expect two certain effects: (1) operators will have to become inventive in finding new markets and (2) some companies will strain to the point of failure.
That means UK gaming operators will search for new customer bases on continental Europe, though the market is largely saturated. Gains in Asia and Latin America will be sought, while many will pin hopes on the United States gaming market. Because of the slowness of state legislation in the USA, most will be disappointed.
A new wave of consolidated is almost certain to happen. Most of the top UK gaming companies have tried to diversify their portfolio after the 2014 POC Tax, or at least once the FOBT law was passed. Those that did not diversify enough are going to have major issues with a 10% tax hike and FOBT max bets slashed by a factor of 50, as their margins will disappear.
Those that brook failure will sell out to the better positioned operators. The end result will be UK bettors are going to have fewer options and therefore their gaming opportunities will be more expensive and less plentiful. British officials, politicians, and anti-gaming activists might celebrate that fact, but responsible gamblers should not.