by Renee Israel
Chancellor George Osborne delivered his budget speech in the Commons on
Tuesday, introducing a new gambling tax regime to the industry that will no
doubt ruffle the feathers of offshore online gambling groups.
Until now, offshore online gambling companies that service the UK market, such
as Ladbrokes, have managed to avoid paying taxes in the UK as they are based
abroad. Now, however, the tax base has now been broadened to provide a level
playing field, and all companies, irrespective of where they are based in the
world, will now have to pay taxes on profits generated by offering their
services to UK players.
Under the new regime, taxation will be on profits which are generated from
the customer's point of consumption.
A number of other EU countries have already adopted this system of taxation,
similar to the UK's new tax for offshore gambling groups.
Commenting on the new tax regime, Gareth Martyn of PriceWaterhouseCooper said
that many large online bookmakers and remote gaming businesses had moved
offshore to benefit from the lower rates of tax in locations such as Gibraltar
"The government faces a number of challenges ahead of the introduction of the
duty to ensure that it can be effectively administered," he said. "A similar
form of duty is already in place in some mainland Europe states, but it is
interesting to note that the introduction of a similar regime in Ireland has
been delayed for over a year."
Higher Duty on UK Gaming Machines
The industry was more surprised by the new Machine Games Duty (MGD)
introduced by Osborne, who increased it to 20%, effective from February 2013.
"One area where I am today making substantial changes is
gambling duties," he told the Commons. "The VAT treatment of gaming machines is
being repeatedly challenged by operators in the courts."
He said that he would therefore introduce a new MGD, with a
standard rate of 20% and a lower rate for low stakes and prize machines of 5% of
Experts say that the new duty will have a major impact on UK
pubs and leisure groups.
Many had expected the rate to be no higher than 17% and the
higher rate will cause many businesses to struggle in an already strained
"We are very disappointed that the government has introduced an
unsubstantial rate of Machine Games Duty," said the Association of British
Bookmakers in an announcement. "It has not adopted a revenue neutral rate for
the whole machine gaming sector as promised. The announcement will put 2,600
betting shops and 11,000 jobs at risk."
The ABB said that bookmakers already pay over £1.6 billion in
tax each year, "roughly £400 million more than we make in profit", and said that
the burden would especially be felt among smaller operators.