Tottenham Report: Pie in the sky

July 14, 2022 2:00 AM
  • Andrew Tottenham — Managing Director, Tottenham & Co
July 14, 2022 2:00 AM
  • Andrew Tottenham — Managing Director, Tottenham & Co

The award for the dumbest online gaming taxation idea has to go to the Romanian government. Currently, players are taxed not on winnings, but on withdrawals from players’ accounts, and the government has decided to dramatically increase this tax.  

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Unless the industry can persuade the government of the folly of its ways, the tax on winnings looks likely to go into effect at the beginning of August. It will increase from what was a sliding scale, between 1% on withdrawals up to €13,500 and 25% on anything above €90,000; the new regime will be between 10% winnings up to €600 and 40% on everything above €2,000 

As nearly all customers withdrew less than €13,500 in one go, the operators were comfortable absorbing the 1% withholding tax. Now, with the starting rate at 10% rapidly increasing to 40%, the operator has no opportunity to pay the tax on the customers’ behalf. The full burden will fall on the customer. 

One has to ask, what is the purpose of this tax? If it is to raise tax revenue, it will fail miserably. If it is to stop people from gambling, that too will fail. The tax rate is so onerous that players will do one of three things: stop betting (highly unlikely), stop making withdrawals and continue to gamble until they need to top up their account, or take their business to an unregulated site (most likely). 

It is very easy for people to gamble on unregulated sites. The barriers for the consumer are extremely low, purposefully so. Some deposits may get refused by the customer’s bank, but a whole ecosystem of payment service providers (PSP) specialise in these “high-risk” transactions. 

The fees these PSPs charge are higher than usual, but the operators can afford and are willing to absorb them. Most customers do not care if an operator is licensed and regulated; the only time they care is when something goes wrong and they don’t get paid when and what they think they ought to. And then the question becomes, whom do I complain to? 

The demand for gambling is quite inelastic, up to a point. In the past, we have seen customers prepared to pay high credit- or debit-card fees to deposit money into an account, sometimes including an exchange-rate conversion, and then fees to withdraw their money. When online gambling was in its infancy, it was not unknown for there to be an intermediary wallet, such as Skrill or PayPal, which also charged fees both for deposits and withdrawals. These fees could mount up, but did little to deter gamblers. 

However, I would conjecture that a cost of 20% on every withdrawal is beyond the point where demand remains inelastic and consumers will vote with their feet (or fingers).  

In countries where operators are faced with new taxes on their customers or onerous regulations like affordability checks, the operators are lobbying against them, arguing that their customers will simply go to the unregulated operators. 

Very little study has been done on the actual behaviour of consumers in the face of tightening regulations: deposit limits, affordability checks, maximum-stake limits, etc. We do not know for sure if, in the face of these, consumers stop gambling altogether or take their business to operators that do not have to impose these “barriers” on their customers. We know that some will migrate to unregulated operators, but not the actual number. 

The Betting and Gaming Council commissioned PWC to undertake a study of the online-gambling “black market” in the UK. The report states, “Whilst it is not possible to isolate the impact of individual regulatory characteristics, the above assessment suggests that jurisdictions with a higher unlicensed market share tend to exhibit one or more restrictive regulatory or licensing characteristics.” Stating the obvious, if you ask me. 

On a simplistic note, I know that since it has become a requirement to actively chose to accept cookies or not, my online behaviour has changed. Faced with this choice, I make some kind of rapid decision whether or not I will accept them. However, if a site makes it too difficult to decline, I simply go to another site. And that is just for cookies; imagine what my reaction would be when asked for copies of payslips or bank statements. 

We know from countries that have recently regulated online gambling, where it was not illegal to offer services from outside the country (Canada, for example), that there is no dramatic switch from unlicensed operators to the newly regulated ones.  

France is contemplating legalising online-casino games; the “black market” is estimated to be anywhere from €1 billion to €2 billion. If these games are legalised and come with “barriers” to consumers, what incentive is there for gamblers to make the switch? The idea that the black market will disappear and be replaced by a regulated one is pie-in-the-sky thinking. 

Regulators have a duty both to consumers and the industries they regulate. When introducing a regulation, they should know what the regulation is supposed to achieve, then be able to measure whether or not the regulation is successful in its aims. Just because it is easy to measure, reducing gambling with regulated operators should not be an aim. 

Because of media and political pressures, regulators introduce swathes of regulations without the methods in place to understand the actual impact of each.  

At a recent conference held by law firm CMS, Mark Blandford, serial entrepreneur and chair of affiliate Gambling.Com, made the point that affiliates know quite a lot about online-gamblers’ behaviour in the face of increasing regulation. Perhaps it is time for regulators, before promoting a new regulation, to speak with Mr Blandford and his colleagues and include them in their consultations. Had the Romanian government done so, they would not have made such an idiotic proposal.