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UK Gaming Tax 'Too High' Experts Warn

by Robert Lee, Tax-News.com, London

26 March 2007


The UK government has finally decided to fix the rate of income tax paid by online gaming companies at 15%, but industry experts say that this rate is far too high to help achieve the government's objective of tempting offshore-based firms back onshore.

“The Remote Gaming Duty (‘RGD’) rate of 15% is considerably higher than the industry hoped for and it is difficult to see any operators moving onshore and volunteering for it," commented Mark Summerfield, Head of Gaming at KPMG. "As such, the government’s objective under the Gambling Act of increasing tax revenues by moving these companies onshore is likely to fail. Operators that are partially in the UK will have to look carefully at where they site their online gaming equipment if they are to avoid this duty."

Karen Potts, Betting & Gaming Tax Partner at Deloitte, also believes the 15% rate will act as a disincentive and will be unlikely to encourage operators to operate from the UK and apply for a Remote Operating Licence.

"For an online business to be attracted into the UK regulatory regime, the rate would probably have to have been less than 3%," she argued. “Casino operators are likely to be very disappointed by this announcement."

Summerfield also pointed out that the scrapping of the Gross Gaming Yield (‘GGY’) 2.5% band and introduction of a 50% rate is likely to lead to a number of the larger casino operators being more highly taxed. It is also expected to make the larger casino licenses under the 2005 Act, and a number of the new casinos under the old 1968 Act, less attractive to operators, he said.

The current Gaming Duty is based on a sliding scale between 2.5% and 40%, with an overall average rate of approximately 20% duty. However, in last week's Budget, the lower rate was abolished, the 12.5% rate increased to 15% and a new top rate of 50% introduced.

Potts added: "Whilst a revised scale of duty was widely expected, many operators expected duty to be lowered rather than raised ahead of the casino licence bidding process. The new scale is likely to increase gaming duty by nearly 25% and will hit all existing casino operators as well as those considering bidding for the new casino licences.

“This change may make it less attractive for operators to bid for casino licences and we could well see a reduction in the number of companies bidding for the small, large and regional casino licences. A key part of the casino licence bidding process will be to demonstrate the value that any casino will deliver to a local area. If operators are paying up to 50% Gaming Duty then there is less money for investment in local regeneration – a key element of the bid process.”

More positively for offshore operators, Summerfield observed that VAT will not be charged on remote participation fees on bingo, poker and betting exchanges. "This means they will retain their advantage over UK based bricks and mortar bookmakers and casino operators," he said.

However, experts have noted that the UK bingo industry is likely to be disappointed by the Chancellor's last budget.

"There will be no changes to the way in which bingo is taxed in the UK, despite the Chancellor having come under heavy lobbying prior to the Budget," stated Michael Camburn, VAT Director at Deloitte. "The exemption for small stakes and fund raising bingo will remain, however there is no extension of this relief to ‘mainstage’ or commercial bingo.”

A comprehensive report in our Intelligence Report series examining offshore e-commerce and online gaming is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report6.asp

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