Changes in gambling taxation are ill-conceived and will support illegal gambling, comments the Czech Institure for Gambling Regulation
The Czech Government's proposal to increase gambling tax rates raises concerns about negative consequences warns the Czech Institute for Gambling Regulation (IFGR)
The Government of the Czech Republic has presented the consolidation package proposal. The changes are intended to affect the tax rates on gambling, along with a significant reduction in the threshold for exempting income from raffles and gambling. The Institute for Gambling Regulation (IFGR) warns that the current taxation of gambling in the Czech Republic is already one of the highest in Europe and expresses concerns about the negative consequences of excessive tax burden. It also highlights the lack of coherence in the proposal and the potential increase in illegal gambling and its associated impact on the state budget.
According to the current proposal, the tax rate for operators of selected gambling activities is set to increase from 23 percent to 30 percent starting from 2024. This mainly applies to sports betting and live games (such as dice, cards, roulette), as well as bingo, totalizator games (horse racing), small-scale tournaments (poker), and raffles. The change also affects the winners, as the current threshold for exempting income from raffles and gambling will be reduced from one million to 50,000 Czech crowns per year.
„The priority of IPRH is tax stability, which is unfortunately lacking in the Czech Republic. Over the past seven years, the legislation on the taxation of gambling has been amended four times, not including the winnings tax. Changes to tax rates should only be made based on expert discussion. Unfortunately, no such discussion has taken place. The increase of the tax by 30% is not supported by any analysis,“ says Jan Řehola, Director of the Institute for gambling regulation, the largest professional association representing 95% of the legal market, regarding the package proposal.
As the Institute points out, the increase in tax will have minimal impact on players' behavior. It is not a consumption tax that directly affects citizens, such as in the case of tobacco or alcohol products. The direct tax is paid by the gambling operators themselves. „Therefore, it is not possible to link the tax rates to reducing the risk and increasing player protection. A higher tax does not in any way protect players; unfortunately, it is quite the opposite,“ comments Jan Řehola.
According to the IFGR, it is also important to note that the mentioned tax is paid by the operator from their revenue without the possibility of deducting expenses. Subsequently, they still have to pay regular income tax and other mandatory contributions. „In the end, the biggest operator of gambling becomes the state itself, which earns two to three times more from gambling than all legal operators combined,“ adds Jan Řehola.
Lack of thorough impact analysis
In the current situation, the proposed changes are considered inconsistent by the IFGR. „Last year, after three years, was the first period that was not significantly affected by measures to combat the spread of the Covid-19 disease. We consider it irresponsible to significantly intervene in the tax structure of gambling with the potential prospect of a slightly higher collection in the range of a few hundred million Czech crowns,“ warns Jan Řehola.
Proof of current sound fiscal settings and stable conditions, according to the Institute, is the current record-breaking revenue from gambling tax. In 2021, the revenue reached 12.5 billion CZK, which is even 4.5 billion CZK more than the previous year. The tax collection of 17 billion CZK represents the highest collection of gambling tax since the effectiveness of the currently applicable legislation in 2017.
The threat of an increase in illegal gambling
The consolidation package also includes a proposal for a significant reduction in the threshold for taxing winnings. „As early as 2019, we warned that this step would increase the costs of combating illegal gambling. Essentially, the state is driving players into the arms of illegal operators. None of them will want to play with operators who would take away 15 or 23% of their winnings,“ warns Jan Řehola. According to the current government proposal, all winnings exceeding 50,000 CZK per year will be subject to taxation - for lotteries and raffles, this applies to every such win, while for other forms of gambling, it is the difference between the amount won and the total amount wagered throughout the year. Currently, a regular sports bettor who wins a net amount of 55,000 CZK per year pays no tax, but according to the proposal, the state would claim over 8,000 CZK from their winnings. It is evident that people will not declare their winnings or, unfortunately, will directly turn to illegal operators where no obstacles await them. The state will be left with tears in its eyes and will collect less than anticipated.
Players will now be burdened with keeping records of all deposits and winnings not only based on individual types of games but also on operators. „The adjustment of the system and the administration will cost more than the actual tax revenue collected by the state. Every player should now keep receipts and proof of winnings because if they exceed the amount of 50,000 CZK in net winnings per year, they will have to file a tax return,“ adds Jan Řehola.
IFGR considers tackling illegal gambling as the solution both for player protection and increasing revenue for the state budget. According to current data, illegal gambling accounts for up to 30 percent of the gambling market in the Czech Republic, resulting in an annual loss of 2.1 billion CZK for the state and municipalities.
An optimal tax rate, according to a study conducted by the University of Copenhagen, is 20 percent. In such a case, up to 80 percent of players would engage in legal gambling. „This is known as the Channeling rate, which sharply declines with each tax increase. For example, the United Kingdom has one of the lowest tax rates at 15 percent, and its Channeling rate reaches 96 percent. Conversely, in France, where tax rates are around 45 percent, the Channeling rate is only 52 percent,“ adds the director of the Institute for gambling regulation.