Czech Government Coalition Contemplates Changes to Gambling Taxation and Regulation
The Czech government coalition is considering contentious alterations to gambling taxation and regulations as part of discussions surrounding the consolidation package.
In an exclusive interview with representatives of the Czech Institute for Gambling Regulation, Gambling.Re gained unique insights into the current state of gambling affairs in the Czech Republic.
These discussions unveiled a host of potential changes looming on the horizon, including adjustments to taxation policies, alterations in tax rates, and their far-reaching impact on municipal budgets.
After the political holidays, the government coalition partners met to discuss possible partial adjustments to the planned consolidation package. This will affect 63 laws and, among other things, the taxation of gambling.
Taxation of gambling is a highly debated and unrewarding topic in the Czech Republic. That is why the government has been unwilling to change the already published proposals in any way.
Taxation of player winnings over CZK 50,000
The taxation of players' winnings in the Czech Republic has been in force since 2020 and now there are plans to adjust its limit. The limit for taxation of winnings, the so-called withholding tax paid by the operator, for lotteries is one of the changes introduced by the government as part of the consolidation package. The proposal, which will fall on the winners themselves, includes a reduction in the taxation limit from the current one million to CZK 50,000. In the case of other types of games, bettors will have to keep their own yearly records of bets, winnings and losses by type of game and by the operator they played with in the calendar year. Each player should now keep receipts and confirmations of winnings. And if they exceed CZK 50,000 in net winnings in a year, they will have to file a new tax return. And we think this is unlikely to happen and this obligation will pass. Instead of the state collecting more, players will go to illegal operators where they pay no obligations. The state will collect less and at the same time overwhelm the Revenue with tracking down and chasing players who have not paid the correct tax on their winnings. Adjusting the system and administration will thus cost more than the Czech Republic will actually collect in tax.
Gambling tax increases by 30%
Taxation of gambling also remains as it was in the original proposal. In the case of lotteries and technical games, whether online or land-based, a rate of 35% applies. For all other types of gaming (live games, odds betting, raffles) the tax increases from the current 23% to 30%.
The redistribution of tax revenue from the land-based technical game is being adjusted, which will have a major impact on municipal budgets. The current tax revenue system was set up so that 65% of online technical gaming and land-based technical gaming was revenue for municipalities that had licensed machines in their territory. And according to the number of authorised machines, the tax revenue was distributed to them. Now all revenue from online technical games will be revenue to the state. The state will take 55% of the land-based technical games. The remaining 45% will be shared equally, 22.5% each to municipalities that have establishments in their territory and to municipalities based on population. Municipalities that have permitted gaming establishments and casinos in their territory will receive roughly 6 times less of the gaming tax revenue than they do now. This means a big hit to municipal budgets. Because they had counted on a certain income, they had projects planned and now they will have to reconsider future investments.
It also means a strong hit for legal operators, as the potential financial incentive for municipalities to allow gambling establishments on their territory decreases significantly. Therefore, the prohibitive approach of municipalities and the associated long-term decline of land-based establishments can be expected to continue.
On the contrary, this division will benefit those that have no gambling on their territory, but only as long as there is some land-based gambling in the Czech Republic.
Amendment to the Gambling Act
The fate of the amendment to the Gambling Act is linked to the consolidation package. It brings a number of innovations, which we informed you about last time. Such as the Panic Button. There are concerns in the sector about it, which are known from the experience of countries that have adopted a similar self-exclusion system. Namely, that players will "accidentally" exclude themselves after pressing the button and then change their minds. They will call call centres and make threats.
A change we didn't describe last time is the modification of the maximum bet amount. In view of the rise in interest in internet gaming in the Czech Republic, the Ministry of Finance has, following comments, modified the maximum bet in online casinos. From the current CZK 1,000 to CZK 500. This entails major adjustments to all currently permitted and offered games.
Another major innovation planned by the Ministry of Finance is the modification of the bonus offer. The bill envisages that risk bonuses will be prohibited. What is meant by such a risk bonus will be defined in a sub-legislative regulation, which the Ministry of Finance is currently working on.
On the other hand, the extension of the legal gaming offer to include a live dealer game is perceived positively. The Ministry of Finance did not originally envisage this at all, but on the basis of arguments presented by the Institute for Gambling Regulation, it reconsidered its original position. Live dealer games should be operated through special studios located in legally operated brick-and-mortar casinos and streamed to the Internet.
In general, the amendment to the Gambling Act contains a large number of changes and comes at a time when the basic licence of legal operators is coming to an end. There is now uncertainty in the sector as to whether the new conditions will actually be adopted or whether operations will continue under the existing conditions. However, whether one or the other applies, it can be assumed that the Ministry of Finance will be inundated with applications for new permits and the procedures will be drawn out.
According to available information, the Ministry of Finance does not foresee any analysis that would evaluate the adopted changes in the future. Unfortunately, it does not even have the objectives it wants to achieve by changing the regulation. It should be noted that even if it had an analysis in the past, it did not follow its conclusions.
Developments in the Chamber of Deputies
Two weeks ago, the second act of the battle over the consolidation package took place. The Chamber of Deputies had already begun discussing it on Wednesday.
The only amendment that touched upon the issue of gambling was proposed by coalition MPs led by Mr. Havránek. This amendment covered several topics, primarily a recalculation within the Income Tax Act. In this context, it also affected the Gambling Act, clarifying that in the case of shared lotteries drawn abroad, there is no need for public drawing and the presence of a notary.
This is an example of how the coalition is making last-minute decisions and, in the process, making significant mistakes. For instance, the amendment was uploaded once and then re-uploaded a few hours later with corrections to the errors in the first version.
September 7, in the afternoon, the consolidation package was approved as we now know it. Naturally, this also affects the amendment to the Gambling Act, which was also approved. The Chamber of Deputies also approved the proposal by Chairman Benda (ODS) to shorten the period between the second and third readings to 9 days.
During the third reading, only technical and other errors or repetitions of the second reading can be addressed. The rapporteur, along with the proposer, will express their position on the proposal (positive, negative, neutral). First, individual amendments or other proposals are voted on, and finally, the proposal as a whole is voted on. If there is no consensus, the proposal is not accepted, and the legislative process ends unsuccessfully. If consensus is reached, the debate in the Chamber of Deputies ends at this stage, and the proposal with which the Chamber has agreed is sent to the Senate without unnecessary delay.
Since no amendments addressing tax rates, taxation of winnings, or the mentioned budget allocation for the tax on technical games have been uploaded at this stage, they cannot be introduced during the third reading. Therefore, it is expected that the bills will pass in the form in which they were presented by the government coalition.
This week, the saga of the consolidation package will continue. On Wednesday, the Guarantor Budget Committee is expected to discuss its form and all 133 proposed amendments. The fate of the consolidation package is still linked to the amendment to the Gambling Act.
The third reading on the floor of the Chamber of Deputies is expected to take place on Friday, September 22. Opposition obstructions are expected again, so it cannot be said with certainty whether the MPs will decide on the consolidation package on Friday.
The Senate is expected to debate the consolidation package on October 11.