The question of whether or not gambling should be taxed is one that can prompt fierce debate. The question was answered unequivocally in the UK by Gordon Brown in 2001. Prior to 2001, gamblers were taxed on their winnings. With the advent of online gambling, however, it became clear that levying a tax on winnings would no longer serve the UK Government because gamblers could play at offshore gambling sites. Brown scrapped the tax and then set about overhauling the Gambling Act.
The 2005 Gambling Act put the onus of tax onto the provider rather than the player. From that point on, all gambling establishments were charged 15% tax on their gambling revenue, and all UK-facing online casinos were required to hold a licence from the UK Gambling Commission. Charging 15% tax on gambling establishments has proved to be a boon for the UK Government. In 2020, for example, the Gross Gambling Yield (GGY) generated in the period of April to September was a staggering £5.9bn. Offshore and Canadian real money casinos that you can access from here were responsible for approximately £3.1bn.
Does tax work as a deterrent?
The UK is not the only country to tax the vendor rather than the player. Australia, Canada, Belgium, Denmark, and Finland, amongst others, have all adopted the same policy. There are many advocacy groups pushing to tax gamblers on their winnings, or at the very least to raise the taxes imposed on gambling establishments. The reason most commonly cited for raising taxes and taxing players is that it would work as a deterrent towards gambling. The 2020 UK GGY clearly shows that the number of people gambling is on the rise, and a global pandemic did nothing to halt the flow. In fact, the pandemic contributed towards the increase in gamblers because people were stuck at home for long periods of time with nothing to do and nowhere to go.
Gambling act review
With more gamblers comes more problem gamblers. Gambling addiction is on the rise, as is the number of underage gamblers. The UK Government recently stepped in to try and rectify the problems by imposing stricter rules and regulations on casinos and betting shops – both online and land-based. In fact, the UK 2005 Gambling Act is currently under review, and several new measures are expected to be introduced to help curb the spread of problem gambling. Raising taxes, however, does not appear to factor in the 2021 Gambling Act. And that’s because taxes don’t act as a deterrent to gamblers. The US, France, and Spain, for example, do tax gamblers on their winnings, and there appears to be nothing in the numbers that suggest that by taxing gamblers, those same gamblers are deterred from making bets.
More Losses than wins
Taxing players doesn’t produce the same yield as taxing vendors, and the reason for this is that most gamblers lose more than they will ever win. During one gambling session, for example, a player might spend £1000 and only win back £500 over the course of a number of small wins. Countries that tax winnings also allow players to claim losses. All this tends to achieve is a more complicated tax return. And let’s face it, if a player wins £50 on a slot machine, are they really going to declare that win on their tax return? Unlikely. Taxing the vendor makes more sense.
The makings of a monopoly
So, should we raise the tax levied on the vendor? Doing so would certainly put a strain on the smaller casino and sportsbook brands. It would eat into their profits to the extent that they may be unable to compete with bigger brands in terms of the bonuses that they offer and the marketing avenues available to them. This would lead to bigger brands becoming a monopoly, and a monopoly is never good for the industry or the players in the long run. Would a monopoly deter gamblers from gambling? Highly unlikely.
The player always pays
And who ultimately foots the bill for a tax hike? Why, the players of course. If gambling establishments are faced with higher taxes, the odds they offer to players will reflect the hike. The house edge will become steeper, and the payout rates will become lower. And if the smaller brands get priced out of the market, players will have no choice but to accept the odds that are offered to them. This will probably lead to more gamblers losing their money, but it won’t necessarily result in less people gambling.
The real issues
To truly confront the problem of problem gambling, the Gambling Act should be focused on the way casinos are run. Transparency is the key to fair play. Player must be given all the information regarding how a game pays out and what the likelihood of winning a jackpot really is. Bonuses should be overhauled. Casinos should only be allowed to offer a bonus that actually gives a player a chance at walking away a winner, rather than a trick to get players to spend more money than they had originally planned to spend. Spending limits should be imposed, and players should be means tested. These are areas that the 2021 Gambling Act will address, and we hope to see vast improvements in the way the industry conducts business.
In our humble opinion, the only benefit of raising taxes is that it will generate more revenue for the government. Is this fair? Considering the fact that most gamblers are losing money, why should they also have to pay the government to indulge in what is a hobby and not a profession? Will it put people off from spinning a reel or playing a hand of cards? Probably not.
Please play responsibly. For more information and advice visit www.begambleaware.org