Is the UK’s Point of Consumption Tax Unfair on Gambling Companies

This December, online gambling companies will be hit with a 15% Point of Consumption tax; but is this fair?

In the UK March Budget statement this year, confirmation was given on plans becoming a reality that will require all remote gambling companies to pay 15% tax on the gross profits generated from UK customers regardless of where those companies are based. This is referred to as a point of consumption tax, and will come into effect on December 1st 2014.

Currently, and up until the new tax rule is applied, companies who are located out-with the UK and supply UK based customers over the internet pay no tax on their profits. The matter has been in discussion for many years; during the 2012 budget a reformation of gambling tax regulation was announced.

This was to be only on remote gambling operators as premises-based gambling would remain unaffected. There are several online and mobile casino services offered from companies based in other countries, which avoid paying UK taxes despite supplying a significant amount of UK customers; but not for much longer.

Point of Consumption Taxing

Remote gambling operators can and do avoid UK gambling taxes by supplying from abroad. The reform intends to level the playing field in terms of UK gambling tax liability and provide a fairer basis for competition between remote gambling operators supplying the UK market from the UK and from overseas.

Sajid Javid, economic secretary to the Treasury, said the changes would “ensure that remote gambling operators who have UK customers make a fair contribution to the public finances.”

The new Gambling (Licensing and Advertising) Bill is currently winding its way through the legislative process. That legislation will require all UK-facing operators to hold a license issued by the UK Gambling Commission, bringing to an end the so-called ‘white list’ that allowed operators licensed in Alderney, Antigua, the Isle of Man and Gibraltar to advertise their services in the UK.

Without this license and subsequently agreeing to the new tax, the operators cannot market to the UK. Companies that fail to adhere to the UK’s new system will be dealt with severely; facing unlimited fines, prison terms of up to seven years as well as the revocation of their remote gambling licenses altogether.

Compliance is likely

Several large betting companies, such as Ladbrokes and Betfair, did chose to move their business bases outside the UK when an initial 15% taxed was to be placed on providers based in the UK. After enjoying some time paying much lower taxes, they will now have to pay-up too; regardless of the fact they moved.

Internet betting in Britain is extremely popular, and operators can’t really afford to lose out on the business and income they can generate in the area. It’s likely that most will comply without much fuss, perhaps except trying to reduce the amount of the levy. In this case, the government will probably get exactly what they are asking for.

This is all pretty self explanatory, and doesn’t seem that unfair really. The companies are earning money within the UK - although not physically but that’s the source of income - so they should provide the government with some of that money to keep things nice and cool. That’s totally cool and fair right?

Well, unfortunately it’s not really that fair. Gambling operators seem to be the only people who have to pay this newly proposed point of consumption tax; while other types of companies pay zero.

Foreign Products in Britain

So foreign based providers of online casinos and sportsbooks in the UK are going to have to pay up like everyone else; but everyone else isn’t even paying up.

Companies such as Amazon, who deliver goods to the UK in vast quantities everyday, earn money from UK sources yet due to being based outside of Britain they don’t pay the same taxes as UK companies who are based in the country.

Online providers that will now need to cough-up
• Ladbrokes
• Betfair
• William Hill

So Point of Consumption tax should now apply to them and similar companies too right? Wrong. It actually doesn’t. The only operators who have to adhere to new rules set forth in the Point of Consumption tax regulation are going to be remote gambling companies operating over the internet.

This seems a bit unfair to the online gambling industry but the actions of the Government can be explained by two, very probable, causes. First, they are saving face.

When large companies did make their move away from the UK, and continued to sell their products and services to the very same people they did when based on British soil, they evaded paying the taxes which were then being imposed on other still-UK-based operators. Those who moved away were laughing all the way to the bank.

The government can’t stand for, and definitely would not have enjoyed that though. One simple solution is to create a new law and tax them anyway; this can easily be justified as a necessary step to ensure fair treatment of all gambling services provided to British people.

Secondly, and this ties in with the first reason, they simply want more money; and where better to get it from than the ever-growing easily-taxed online gambling industry.

The official justifications behind the move actually seem quite reasonable and it doesn’t seem like a particularly bad idea for the most part. However, if it is such an important concern that markets be fairly regulated then perhaps some of the scrutiny and sponging should be applied to other companies operating in the same fashion; the only difference being that they are offering another product or service.