It’s All About The Tax
Italian gambling tax revenue reached EUR 11.37 billion (£9.79 billion) in the period from January to November 2010, while in the UK the tax revenue for the same period was £1.42 billion.
For the full year 2009 Gross Gaming Yield (GGY) for the whole UK gambling industry was equivalent to US$ 18 billion while Italian GGY was US$20.2 billion, a difference of 12%. Why, then, is there such a dramatic difference in tax revenue between the two markets?
Italian tax revenues derived from betting and gaming are equivalent to 3% of all tax collected while in the UK is it only 0.3%. This difference is mainly due to the gambling tax mechanisms the two governments have chosen to employ. The UK taxation model is based on gross profits, whereas the Italian model is largely based on turnover.
In the UK, for example, general betting duty is charged at 15% gross profits (money staked minus players’ winnings).
The UK gambling taxation system is straight forward compared to the Italian one, where rates range from 3% to 20% depending on the bet, and from 43% to 53% depending on the lottery.
And in the Italian Internet poker sector, where the tax is on gross profits, there are one-off payments for licences that range from ‚Ç¨300,000 to operators with existing trading history to EUR 1.5 million for start-ups.
The system is deliberately designed to maximise the flow of revenues toward the Italian Treasury’ coffers and the Italian Economic and Finance Ministry does not hide this intention.
In contrast, the Italian government in its 2010 Finance Bill (called The Stability Law), took an aggressive stance against operators located in offshore jurisdictions that take money from Italian customers. Although bookmakers that work from offshore jurisdictions are technically operating outside Italian law, they could find themselves with an Italian tax bill at the end of the year, which will be based on an estimate of turnover calculated by AAMS, the Italian gaming authority.
The Stability Law, which was enacted on the 1 January 2011, has additional measures and sanctions for those who try to avoid paying betting duties and provides tighter supervision of slot machines operators. These strict measures are a touch ironic for a country which is famed for not doing enough to combat widespread tax evasion in other economic sectors.
The big question now is, in this difficult economic climate, will other cash-strapped governments follow the Italian lead. In France ARJEL, the French Regulatory Authority, has imposed an 8.5% tax on all betting stakes. This high turnover tax has caused some firms to withdraw from the French market on the basis that they don’t believe they can make any profit under the those tax conditions.
It seems that the main thrust behind the haste of many governments to regulate the internet gambling sector is revenue generation for themselves. But if the tax system is punitive, they could end up with very little.