Report Criticizes UK Gambling Tax Proposals

by Jason Gorringe, Tax-News.com, London

10 January 2012

UK government proposals to tax gambling operators on a point-of-consumption basis to boost revenues and enhance UK oversight of gambling operators could be self-defeating, according to a new report compiled by Deloitte on behalf of UK bookmarker William Hill.

The report, obtained by The Telegraph, warns that the tax proposals - aimed at levelling the playing field between domestic operators and operators located offshore - could backfire as gamblers move their business away from legitimate operators to the lightly-regulated 'grey market'.

The government has proposed to review the UK's regime so that offshore operators would be required to obtain a license from the UK regulator in order to transact with UK clients. The Treasury is also reviewing the case for changing the taxation regime in line with these proposals and taxing operators on the basis of customer location.

The study warns that if the new regime is introduced, it could have the unintended consequence of boosting the market share of the 'grey market'. It finds that a 10% tax would boost grey market revenues by about 27%, rising to 40% if a 15% tax were introduced.

Presently gambling operators in the UK are required to pay gross profits tax at 15% but under the proposals this tax could be reduced and offshore operators would newly be required to contribute to UK coffers. In recent years, operators have increasingly looked to specialist, low-tax territories, such Gibraltar and the Isle of Man, to relocate operations, where operators benefit from substantially more favourable tax treatment with profits subject to tax as low as 0%.

Deloitte has estimated that the revision of the UK tax regime under a 15% rate would provide just GBP116m (USD179m) in revenues after taking into account an associated fall in corporate tax receipts. This tax benefit should be weighed against the backdrop of a stronger grey market, the study says.

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