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By Ali Qassim
Online betting firms are speaking out against the U.K.'s new tax on betting firms with online and offshore operations.
The logic behind the new tax—applied to 10 percent of companies’ annual profits above half a million pounds ($646,837)—is “to correct the current unfairness in the levy system whereby betting operators in Britain are required to pay the levy, but those based offshore in otherwise identical circumstances are not,” U.K. Culture, Media and Sport Secretary Tracey Crouchok said.
The levy won’t be the magic bullet to create a level playing field between operators, according to Clive Hawkswood, the head of a lobby group that includes Ladbrokes Coral PLC, William Hill PLC and Paddy Power Betfair PLC.
Betting operators, many of whom run both high-street and online operations, are in fact against the existence of any type of levy for horseracing.
“As a rule, we don’t believe that the government should be providing gambling industry-funded state subsidies for any sport,” Hawkswood, the chief executive of The Remote Gambling Association (RGA), told Bloomberg BNA.
Robin Mounsey, a spokesman for the British Horse Racing Association (BHA) which lobbied for the changes, told Bloomberg BNA that the levies used to fund prize money, equine welfare and veterinary science had halved from over 100 million pounds annually in the last decade to less than 50 million pounds.
Of the 11 billion pounds wagered each year on horseracing, more than half is online, with the majority of online businesses based offshore, he said. The new levy, effective from April 25, could raise between 10 million pounds and 30 million pounds, according to March 27 parliamentary debate on the Horserace Betting Levy Regulations 2017.
Speaking for the biggest operators, Hawkswood said the “reality is that out of 2,000 licensed betting operators perhaps less than 50 will pay the levy at all. So, the argument that it creates a level playing field is at least questionable.”
Many bookmakers like William Hill and Ladbrokes Coral and Betfred, have already compensated for moving their internet businesses offshore by paying in the last few years into an Additional Voluntary Contribution Fund for horseracing, in addition to the levies they already pay for income earned in their betting shops.
“We accepted the principle of paying the offshore levy sometime ago when we offered a voluntary settlement,” Donal McCabe, a spokesman for Ladbrokes Coral, told Bloomberg BNA.
“Our view is that we will pay what we are legally obliged to pay and hope that with this sorted we can move on and work with racing on improving the product for all concerned with the sport,“ he said.
Warwick Bartlett, chief executive officer of Global Betting and Gaming Consultants, told Bloomberg BNA he was more open to the idea that reforms could achieve a level playing field between online and physical operations. But he stressed that would only apply for “those that are legitimately licensed in places like Gibraltar,” one of the locations British operators have moved to because of lower taxes.
Founded in 2013, members of the Gibraltar Betting and Gaming Association Limited include Betfair, Ladbrokes and William Hill. GBGA didn’t respond to media requests for comment on the levy.
Bartlett said that the new levy “will do nothing to deter any unlicensed operators” including any based in less publicized offshore jurisdictions.
“At the moment, this is not an issue because the pay-out ratio to the gambler is high. If the tax rates increase, however, illegal operators will be priced back into the market,” he said.
Hawkswood pointed out that in addition to all of the normal business taxes, U.K. betting operators also pay an additional 15 percent of their gross profits in betting tax to the government “so imposing an additional quasi-tax levy on top of that is not justified.”
“The sum of the commercial revenues that pass from the betting to the racing industry, for example via the payments of media rights and sponsorship, is already worth hundreds of millions of pounds per year,” he said.
Bartlett agreed. “The horse race industry now earns substantial sums selling the TV rights and since it has placed itself on a commercial footing the subsidy is no longer required,” he said.
He described the levy as a subsidy “masquerading as payment for a product”, saying it “exists primarily because the people who own the racehorses are the richest 0.5 percent of the people in the country. They are a powerful lobby.”
In defense of the levy, the BHA’s Mounsey said the increased receipts will improve prize money for participants to allow them to maintain their involvement in the sport; keep horses in training and improve the racing product; help recruitment, retention and growth of jobs in racing and in the rural economy; and help the future of small businesses such as farriers, vets, feed and equipment suppliers.
Under the rules, the new levy will be in place for up to seven years, after the U.K. is scheduled to leave the European Union.
“We will see what the new world looks like when it is reviewed, but at the moment we do not see that leaving the EU will have any impact at all,” said Hawkswood.
Bartlett disagreed. He thinks the EU State Aid regulations “have been impeding what the U.K. government really wanted to achieve, which was to ensure more money went to horse racing.” The European Commission cleared the way for the new levy on April 21.
“The U.K. leaving the EU will give more license for the horse racing industry to ask for more money,” he said. “In fact, I predict they will set up an entire department to achieve that result.”
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