The Perils of Over-Taxing UK Gambling Operators

Posted by Harry Kane on Friday, November 24, 2017

As national governments have a duty to provide for their subjects, there is also a pressing need to increase revenues and public spending. This can be a challenging pastime at present, however, particularly with tax hikes so unpopular and the cost of living continuing to soar in line with inflation.

This is why authorities have a tendency to over-tax certain products and markets in some instances, with the tobacco industry providing a relevant case in point. The cost of cigarettes has risen incrementally for more than a decade in the UK, with the government continuing to implement tax hikes and consumers now unable to buy a packet for less than £8.82 (excluding VAT).

Whisper it quietly, but there remains a danger that the British government could be about to follow suit with the iGaming market in the UK. This could prove to be a huge mistake, however, even allowing for the growth showcased by UK operators during recent times.

Taxing UK Gambling operators, and the challenge facing authorities

Clearly, the online gambling market is growing at a rapid and seemingly unstoppable rate in the UK. This sector generated a staggering £4.5 billion in revenue at the end of 2016, with this sum accounting for a record 33% if the gambling industries overall yield. Similarly, leading operators Sky Bet revealed a 38% increase in group revenues as part of its November reports, and this type of expansion is indicative of the market as a whole.

Operators in the UK have therefore become a natural and vast target for increased taxation, particularly as the economic climate continues to worsen. Remember, the spectre is continuing to cause uncertainty and devalue the pound, while stagnant real wage growth and the spiralling cost of living means that households are reinvesting less of their income back into the economy.

This has definitely influenced the government’s decision to review its current policy on fixed odds betting terminals (FOBTs), which could feature heavily as part of the Chancellor’s next budget. Not only are betting limits likely to be altered, but there’s also a chance that the government may introduce a higher of the consumption tax for operators. This was first introduced in 2014, with the legislation imploring UK-licensed operators to pay a flat rate of 15% on gross profits at the point of consumption (along with standard levies on net profits and corporation tax).

A delicate balance – why over-taxing UK Gambling operators may be counter-productive

With these points in mind, some would argue that gambling operators in the UK are already being over-taxed. Hiking consumption tax further could therefore prove too much for some operators to bear, even allowing for their commitment to remain in Britain and support an ailing economy. After all, there is a tipping point at which the financial model for UK operators becomes largely unsustainable, particularly when firms can take themselves offshore and benefit from far more fluid regulations.

This tipping point is fast approaching, leaving the government with a stark decision in terms of its taxation policy. More specifically, the Conservatives must decide whether to hike taxes and optimise revenues in the short-term or adopt a longer-term approach that compels operators to remain in the UK. It’s also important that authorities recognise the positive contributions that operators make to the wider economy, the aforementioned Sky Bet currently looking to create up to 200 high-tech in its home county of Yorkshire.