Latvia became the first of the three Baltic States to raise taxes on video poker and slot machines, as industry insiders predict the other two Baltic States to follow the lead shortly.
Gambling industry analysts concur with casino operators, seeing the proposed 30% tax hike on slots and video poker as not being lethal to the overall industry. Yet the tax increase is sure to cause this year’s executive Christmas bonuses to go on a heavy diet. The Latvian parliament is currently debating legislation that would raise monthly taxes on video gambling machines from LVL140 (€200) to LVL200 (€285). An original proposal to double the tax was rejected out of fear that such a move will resurrect underground online casinos in Latvia, eventually leading to instability and an even lower tax base.
The global financial crisis had a detrimental effect on the Latvian gaming industry, with revenues falling 50% from a height of €259.6m in 2007 to €122m in 2010. At the same time, the overall number of slot machines drastically decreased to around eight thousand, from a height of seventeen just three years ago. The Latvian government, still unfamiliar with the market laws of supply and demand, after decades of Communist governments, decided to change Latvian gambling laws to increase taxes to make up for the lost revenue, instead of cutting taxes to promote industry growth.
Olympic Entertainment Group, the country’s largest (and most influential) operator of traditional and internet gambling devices, publicly stated that the tax increase is bound to cause market consolidation through expected bankruptcies, buyouts and takeovers of undervalued casinos. Potential partnerships with the cash starved smaller gaming rooms can be expected, Olympic’s market share might increase due to buyouts of smaller casino operators not profitable enough to be able to handle a significant increase in taxes.
The CEO of Olympic stated that “we can definitely say that because of the proposed tax increase, the Latvian casino industry can expect to lose a few of the smaller and less profitable casinos.’ The market’s total volume is likely to stay the same but with a smaller number of gambling venues,” the CFO of OEG, Madis Jääger, commented.
Latvia’s two neighbors, Estonia and Lithuania are expected to use Latvia’s tax increase as an excuse to propose similar legislation to remain competitive.