UK Looking to Raise POC Tax Rate to Counteract FOBT Stakes Cut

In May, the UK government decided to slash the maximum allowable stakes on Fixed-Odds Betting Terminals (FOBTs) from £100 to £2, but has subsequently given the industry a 2-year stay of execution in order for bookmakers to prepare for the drastic hit to their bottom lines. At the same time, the point-of-consumption tax (POC) for online gaming, also known as the remote gaming duty (RGD), is set to increase as early as April 2019 as the government looks for a way to make up for the significant shortfall in its potential tax revenues.

Remote Gaming Duty

On December 1, 2014, HM Revenue & Customs (HMRC) first introduced a 15% tax rate on all wagers made by UK customers, and while no announcement has been made as to how much the new level will be, some experts see it rising to as high as 25%. Defending its position, the government has asserted that more gaming taxes need to be collected from companies to help fund problem gambler and treatment programs, and as the Treasury explained recently:

“We are changing the rules, so they balance the needs of vulnerable people, those who gamble responsibly and people who work in this sector. In order to cover any negative impact on the public finances, and to protect funding for vital public services, this change will be linked to an increase in Remote Gaming Duty, paid by online gaming operators, at the relevant Budget.”

Economic Considerations

FOBTs have become a hugely important part of the UK’s gambling industry, and from the £13.8 billion lost by British gamblers per annum, a massive £1.8 billion was spent on FOBTs. The duty then collected on the machines was worth more than £600 million last year, and according to Stockbroker Goodbody, the Treasury subsequently stands to lose £194 million from the FOBT stake cuts, provided that players decide not to switch to other types of taxed gambling products.

Meanwhile, bookmakers have warned that the FOBT restrictions to be imposed will ultimately cost their industry thousands of jobs as more high street outlets are forced to shut their operations. The situation would also have been significantly worst if the stakes reduction was imposed in the short term, with William Hill CEO Roger Devlin having warned that 20,000 jobs may have been shed as a result.

Less Appealing Tax Environment

Gambling operators are currently mulling their strategic responses in order to cope with the higher RGD tax to be imposed. One way in which this may be accomplished could involve passing on some of the extra costs to their customers, or more aggressively market their FOBTs to customers to make up some of the shortfall. Another strategy may also involve expanding their operations in a few key markets with more appealing tax environments.

Alternate Markets

One of the markets that operators may consider targeting is Spain, which although currently quite small has been returning impressive year-on-year growth over its key online segments, including sports betting (+ 14.5%), casino (+51%), and poker (+42%). In 2017, online betting subsequently generated €560 million ($687m) in revenue, with that figure forecast to soar to €1.5 billion within the next 3 to 5 years.

Portugal‘s online gambling market, on the other hand, has suffered stagnation on account of its strict regulations and high taxation rates. According to experts, the country may therefore consider lowering its duties in order to attract more foreign operators and drive forward growth.

Another potentially attractive market is Sweden, which recently announced that it would be liberating its online gambling market, with the application process starting on August 2018 in anticipation of the new regulations coming into effect on 1st January 2019. The country’s gross gaming revenue is expected to be set at 18%, and furthermore no taxes will be imposed upon consumer play or winnings.

The US also represents another attractive draw, and following the Supreme Court’s decision to allow sports betting throughout the country, is expected to become one of the most lucrative sports betting markets in the world worth around $7 billion annually. Nevertheless, regulation and taxes will vary from state to state, and so operators will need to assess each individual market before deciding where their best opportunities lie.