Online gambling companies operating in the highly lucrative UK market are facing financial pressure arising from the government’s proposal to levy tax on free spins and bonuses. Most online casinos offer these free spins and bonuses as a way to attract new customers given that the market is fiercely competitive. Many casinos even offer these benefits to existing customers in order to retain their loyalty. If these were to be taxed as well then the government would generate an additional £100 million from the industry.
This move by the Revenue & Customs is intended to bring online gambling onto the same page as sports betting where bonuses have already been brought under the ambit of tax. It is expected to come into effect next autumn.
Offshore operators are already dissatisfied with the current tax regime in the United Kingdom since they are taxed double when compared to local operators. The announcement in 2014 of the Remote Gaming Duty amounting to 15 per cent of gross profits was itself received with great dismay since it made it harder for small operators to stay in business. The latest announcement is viewed as a hidden tax increase and it is therefore most unwelcome.
There is a good chance that the industry will not withdraw its policy of giving free spins and bonus cash because customers have grown to expect them and will be quite unwilling to do without them. Therefore, they might be left with no option but to absorb the cost.
However, it has to be pointed out here that most UK based bookmakers, both big and small, set up offshore gambling divisions over the past two decades in order to avoid paying tax. At that time, the government also ensured that these operators would have to be licensed in the United Kingdom if they offered their services to customers based in that country. All that the government has done is plug this loophole and make these companies pay their fair share of taxes while also being compliant to gambling regulations.
The 2014 Point of Consumption tax has brought in far more revenue than the government anticipated. While the government expected to bring in annual revenues of £300 million, it actually earns twice that amount. However, the government hasn’t yet released any data regarding the amount of duty received.
Remote Gambling Association head honcho Clive Hawkswood pointed out that another reason for the higher tax revenues could be the fact that the industry grew at around 10% per annum. Incidentally, betting companies are also required to pay Machine Games Duty and General Betting Duty and not just Remote Gaming Duty.
There are approximately 300 online gaming operators in the busy UK market. They had earlier been taken aback by the Point of Consumption tax (as the Remote Gaming Duty is known) and the smaller ones have been hit the hardest. As a matter of fact, the increased level of taxation has precipitated a financial crisis that has resulted in many mergers and acquisitions since the industry has long viewed consolidation as a reliable way of staying profitable.
Some of the biggest mergers in the industry were GVC with Bwin, Paddy Power with Betfair, Stan James with Unibet, and Ladbrokes with Gala Coral. However, William Hill has been at the receiving end of takeover bids from the Rank Group and 888, and although nothing concrete came of those offers, there are talks about a bid from Skybet-owner CVC. The financial pressure on gambling companies has also led to many job cuts. The industry will definitely have to address this issue without delay in order to keep it on track.