PRESS RELEASE

                   24 February 2015

RGA calls on the Montenegrin Government to review gambling tax regime.

 

At the first major conference on gambling taxation in Montenegro the Remote Gambling Association (RGA)said that the high levels of taxation imposed on licensed gambling operators would send citizens into the black market.

Today the RGA spoke about its experience of tax regimes across Europe and said that to protect consumers and prevent money laundering and other criminal acts, the Government needs to have sustainable taxes for online gambling operators. If the taxes are too high there is no incentive to get a licence and as a result citizens will be forced to use unregulated gambling operators and the government will not get the tax income it is due.

The online gambling customer profile

Online gambling customers are highly price sensitive and are sophisticated users of technology.  A large proportion of customers will switch to an offshore, duty avoiding operator with better prices and more bonuses provided they can make deposits and withdrawals. Quite simply, the present tax system makes it impossible for licensees to compete and hold market shares.

An excessive tax will, if it can be absorbed by operators, will reduce their margins significantly.  If they pass it on in the form of higher prices, they will lose a very large proportion of their sales.  This will result in considerable exit from the market, especially by those already operating on thin margins. More than 50% of the Montenegrin online gambling market is met by illegal operators. If legal operators withdraw from the market because of excessive taxes make the businesses unprofitable then this percentage will rise.

 Why European jurisdictions are adopting a gross profit tax for online gambling

In combination with a reasonable effective rate, the choice of an efficiently structured tax can have benefits for consumers, operators and governments.  Across Europe a gross profits tax (GPT) is the best option for the highly competitive remote gambling sector.  The GPT is levied on the operator’s profits and in a highly competitive market, incentivises operators to provide consumers with greater value and choice, which in turn creates additional demand for the product and taxable revenues for the Government.

The Montenegrin proposal

In contrast, the turnover tax in Montenegro is levied on consumers’ stakes. The tax burden is therefore shifted to the consumer and makes high-turnover but low-margin games economically unviable for operators, thereby reducing the value for consumers and demand for the product (and adversely impacting on the taxable returns to the Government). It is also impossible for poker providers to operate under a turnover tax as the stakes form the winning pool and the operator takes only a small rake (or entrance fee).

The tax is very unpopular with customers, more than 20,000 have signed a citizen initiative to the parliament where they request to calling on the Government to cancel or modify the 15% winning tax.

This tax has to be modified to be sustainable. Ordinary customers must be protected from the tax, for example to tax only winnings over 500 EUR. A further problem is that operators are expected to collect the tax rather than the tax department. This means that customers will think that they are being short-changed by the operators.

The RGA alternative

A gross profit tax on the operators, set at a reasonable rate will incentivise investment in the market. Operators will adopt a long-term partnership approach with the licensing jurisdiction, financially benefiting both parties and providing the regulatory certainty which is desired in Montenegro.The gross profits model is administratively simpler, resulting in lower costs for regulators and lower compliance costs for the operators.

Sue Rossiter, Director of Policy and Projects at the RGA said:

“We are very worried about current developments in Montenegro. There is a real threat that legal operators will have to close their businesses soon, and that gap in the market will be met by operators based outside of Montenegro who will pay no taxes.

It would be extremely damaging for the industry, consumers and the government if all the good work on introducing a regulated market was threatened by excessive taxation.”

 Notes for Editors

  1. The RGA is the largest online gambling trade association in the world, representing the world’s largest licensed and stock market-listed remote gambling operators and software providers. The organisation provides the remote gambling industry with a single voice on all issues of importance to regulators, legislators, and key decision-makers. Further information about the RGA can be found at rga.eu.com.
  2.  The effect of the tax is:

If a customer bets€100 at a price of 1.80, in case of a winning bet, the customer should get back €180 (€80 winnings plus €100 stake).

The Tax department want operators to take 15% from the customers winnings of €80, and pass it to them. The customer will only get €168 returned to them which looks like the odds are far worse than they are.

For more information,

UK Contact: Sue Rossiter, Director of Projects and Policy, [email protected] or +44 (0)203 585