Bookies Dismayed By Irish Gambling Tax Increase

On Tuesday, Oct. 9, Irish Minister for Finance Paschal Donohoe confirmed rumors that the government was going to double the tax rate on gambling, increasing it from 1% of turnover to 2% on Jan. 1, 2019. The tax applies to sports betting and horse racing wagers whether online or in brick-and-mortar betting shops.

Ireland Seeking to Increase Tax Receipts

The government of Ireland has released a budget of €66.5 billion for 2019, an increase of €3.4 billion over 2018. As a result, Mr. Donohoe has been attempting to find additional sources of revenue, of which the higher betting tax is undoubtedly a component. Projections show that it could bring in an extra €51.6 million per year.

In 2017, there was a movement to change the way betting taxes were handled, but Mr. Donohoe explained at that time that the rates would remain the same although they might change in 2018. It seems that the finance minister is holding true to his word, which we assume is just as rare among Irish politicians as it is with their cohorts around the world.

Some of the extra revenues gained from the tax increase will go toward fighting problem gaming. The racing industry will also see its fortunes increase with the government’s Horse and Greyhound Racing Fund being boosted by €4 million in 2019.

Bookmakers Respond

Though the changed taxation structure for gambling has its supporters, most notably the four-member Independent Alliance in the Irish parliament, the betting industry itself has a different view. They contend that this additional burden heralds the downfall of many smaller operators who will be squeezed out of the market. In an interview with the Irish Examiner, Sharon Byrne of the Irish Bookmakers Association explained:

“The entire sector is devastated…At least five people work in each betting shop, and we’re estimating around 300 shop closures…This will kill the industry, for a different type of service a localized service, they’ve just made it extinct. There is no preparing for this, this is the end, the end of our sector, we’ve fought very hard to prevent his, now we’re in turmoil.”

Details of the Tax

It’s important to note that the Irish betting tax is levied on turnover, not revenue. This means that every dollar bet is taxed at the specified rate. So for instance, a bookie accepting a €100 bet would have had to pay €1 under the old 1% tax regime, but will now have to hand over €2 to the government.

Because the tax is determined by the amounts bet, even bookmakers who fail to realize a profit on their activities are required to pay. Assuming a margin on bets of about 15%, which is typical of the industry, 1% of turnover represents about 7% on gross revenue while the new 2% tax would consume about 13% of this revenue.

The gambling tax alterations also include a change in the rate applicable to betting exchanges. Unlike traditional sportsbooks, where customers bet directly against the house, exchanges simply match people seeking to put money down on opposite sides of a wager. The exchange makes a profit by extracting a small commission from each bet. Ireland will begin taxing these commissions at 25%, an increase over the current 15% rate. This aspect of the updated tax code hasn’t led to as much controversy as the change in overall betting tax rate, perhaps because it’s not based upon turnover but rather commissions, which is basically the same as gross gaming revenue.

Irish Bookmaking History

Irish bookmakers have a long and storied history, first coming under government regulation in 1922 and then seeing their field further affected by the 1956 Gaming and Lotteries Act. However, high tax rates prevented the number of betting shops from proliferating throughout the country. Indeed, the tax rate on betting turnover was 20% up until 1986 when it was lowered to 10%. It was then dropped to 5% in 1999 and 2% in 2002. The rate of 1% was adopted in 2006 and will remain in effect until Jan. 1 when it will go up to 2%.

The low 1% tax initially led to an explosion in retail outlets. According to the the Irish Bookmakers Association, there were close to 1,400 shops in 2008 where customers could step inside and place their wagers. This number has since dwindled to fewer than 900 outlets today, probably as a consequence of the early-2010s Irish recession. If the expected 300 shop closures from the doubling of the tax rate come to pass, then Irish betting shops will number less than half of the figure from a decade ago.

Online Bookmakers Also Affected

The 2013 Gambling Control Bill required Ireland-based bookies to obtain licenses if they wished to offer their services online, but offshore organizations were exempt from this requirement. However, in 2015, the Betting (Amendment) Act of 2015 stipulated that all companies transacting in the Irish online betting market had to hold valid licenses from the government. They’re required to pay the same tax on turnover as their offline brethren.

It thus appears that the recent Irish gambling tax changes will impact the world of internet sports betting no less than it will the physical betting shops. This could drive many online operators out of the country and may grow the market for unlicensed internet gambling sites who pay an effective tax rate of 0%.

Bookies Launch Ad Campaign

Ireland’s bookmakers haven’t given up on persuading the government to change the tax increase announced as part of its 2019 Budget, with the Irish Bookmakers’ Association (IBA) leading the charge to heed its recommendations. According to the organization, small and medium-sized enterprises (SMEs) are most at risk from the betting tax increase, particularly those who are independent and without a developed portfolio of betting shops, or an online presence. The IBA’s chairperson, Sharon Byrne, has even called the tax hike ‘simply a tax on jobs’, as bookmakers will not be allowed to pass the extra cost onto punters, meaning that many face solvency issues and be forced to shut down.

Against this backdrop, the IBA has now launched a website called saveourjobs.ie in which it encourages members of the public to sign a petition opposing the move. An orchestrated media campaign has also been launched in order to get its message out via posters, regional newspapers, news stations and over the radio. As Byrne explains, however, her organization would prefer a new tax imposed that was in line with recommendations made by the Department of Finance’s tax strategy group last year at the request of Minister Donohoe. As she explains:

“Their recommendations were that the turnover tax is particularly penal on smaller operators, and that a gross profits tax – similar to that applied in the UK and online – would be much more suitable, at the right level.”