Is the Government Playing a Dangerous Game with Online Tax Hikes?

Posted by Harry Kane on Wednesday, July 18, 2018

Despite a sustained rate of growth that saw the niche generated £4.7 billion in turnover last year, there are storm clouds gathering above the online gambling market in the UK.

While Brexit remains one of the most prominent issues clouding Britain’s social and economic future, this will also have a significant impact on the nation’s gambling industry. The proposed FOBT cap, which will cap individual stakes at £2 on all fixed-odds betting terminals, will also affect the market, with the government set to recoup some of its lost revenue by increasing the Remote Gaming Duty.

While this makes perfect sense to some, for others it is a decidedly risky move that could significantly undermine the UK market. We’ll explore this further in the article below, while asking how developments on the continent may influence operators further.

Appraising the FOBT Cap and Spain’s New Tax Laws

We’ve discussed the FOBT cap before, of course, with the government having recently drawn criticism for delaying the implementation of this measure for two years. Despite this, the Conservatives have already made plans to recoup some of the tax revenue that will be lost to the cap, by increasing the Remote Gaming Duty from its current rate of 15%.

This may be more than some operators are willing bear, particularly those that have already voiced concerns about the point of consumption tax applied to UK-active brands and impending impact of Brexit. Strangely, the issue may be even worse for brands that remain active both on and offline, as companies that lose revenue as a result of the FOBT cap would most likely increase their investment online to mitigate these losses.

These plans will be impeded by a hike in the Remote Gaming Duty, making the prospect of retaining a base in the UK increasingly untenable for some.

Still, there’s little chance that the UK’s leading online operators will relocate abroad, right? While this may well have been the case until recently, the combination of increasingly stringent regulatory measures and impending tax hikes has caused a shift in the landscape. This is also being exacerbated by developments from the continent, where Spain is blazing a trail for others to follow in terms of delivering tax breaks to lucrative industry verticals.

More specifically, the Spanish Parliament has unveiled a huge 5% tax reduction for a host of online casino and sports betting services, all as part of their 2018 fiscal budget. This will see tax on gross gambling revenues fall from 25% to 20%, across a range of industry niches including sports and exchange betting (as well as casino gameplay).

Even the tax revenues generated through horse race wagers will fall, as the government looks to embrace a true growth market and incentivise further expansion. Make no mistake; this represents a crucial juncture a burgeoning industry, which will also expand its licensing program in 2018 and introduce new players to the marketplace.

Playing with Fire – But Will the UK Government Get Burned?

Herein lies the issue for the UK market. If the Spanish sector is moving to extend licensing and potentially incentivise international brands to relocate to the Iberian Peninsular, there is clearly an opportunity for unsettled British firms to consider this option.

Then there’s the incentive too, as online operators would instantly be able to reduce their tax liability while also retaining access to the single market post-Brexit. For those that are also impacted by the FOBT cap in the UK, there’s a timely chance to establish a new and more lucrative business model that is capable of sustaining long-term growth in a growing market.

In this respect, there’s little doubt that the government is playing with fire, both with the decision to increase the Remote Gaming Duty and the timing of this announcement. After all, the market was already balanced on a cliff-edge, partially due to Brexit and also thanks to the growing concern surrounding existing tax rates in the UK.

In fact, when it was suggested that Chancellor Philp Hammond was considering introducing further tax increases during his autumn budget last year, a number of CEOs spoke out and warned that this may encourage operators to consider relocating abroad. So while many were happy and incentivised to operate from a UK base, it was suggested that further tax hikes and increases to the Remote Gaming Duty could make this untenable and force companies to take drastic actions.

Some will argue that this point in time is fast approaching, with the Remote Gaming Duty hike set to be implemented next April and barely days after the UK has officially left the European Union. This unique set of circumstances could yet be the kindling that light the blue touch paper, igniting the industry and sending operators nationwide diving for cover in the relative sanctuary of the single market.

The Bottom Line

For now, of course, there’s little to do but to sit and wait, while the Brexit negotiations run their arduous course and the precise nature of the Remote Gaming Duty hike is revealed.

There’s no doubt that the government is playing a decidedly dangerous game, however, and one that is putting the short and long-term growth of the market at risk. This could have a huge impact on the economy as a whole, which will already be forced to deal with a reduced GDP in the wake of Brexit.

One glimmer of light remains in the status of the Spanish market, which is enjoying something of a Honeymoon period as it continues to grow. This cannot last indefinitely, as British operators can testify that as the market becomes saturated the focus turns towards more stringent regulations and safeguarding players.

This may frame the decision to remain in the UK in a far more positive light, regardless of the initial disruption that may lie ahead. Forward-thinking brands may also see the benefits of increased tax and regulations, as this could help to establish them as ambassadors for fair and responsible gaming in a constantly changing market.