Tuesday February 26,2013 : UK TREASURY TAX WINDFALL IN 2015 FROM POINT OF CONSUMPTION TAX
 
GamblingData forecasts that the UK online gaming market will be worth GBP 2.74 billion by 2015
 
The British Treasury could collect up to GBP 386 million from a point of consumption tax on internet gambling in its first full year of operation in 2015 if the tax is set at 15 percent, according to forecasts from research firm GamblingData.
 
The UK government has stated it intends to introduce a POC tax for online gaming activities, likely to be levied at the same rate of gross profits tax or 15 percent, at the tail end of 2014.
 
GamblingData predicts that the UK online gaming market will be worth GBP 2.74 billion by 2015 – more than double the size it was in 2008. Calculating a rate of compliance of around 92.5 percent, the analysts at GamblingData believe that the UK Treasury could collect up to GBP 385.7 million in a 2015 tax revenue bonanza.
 
Should the UK Treasury decide on a 20 percent POC rate, GamblingData predicts that with the same rate of compliance the taxman could expect a windfall amounting to GBP 514 million.
 
With consultations on the draft bill still in progress (see previous InfoPowa reports), observers of the UK industry and companies impacted by the law warn that a higher rate of tax would lead to a higher rate on non-compliance.
 
Analysts at GamblingData predict that under the gambling industry’s preferred option of a 10 percent rate of POC, even if 100 percent of the market complied with the tax, the UK Treasury could expect to garner GBP 274 million in tax. For the UK government to gain less than GBP 274 million under a 15 percent POC tax rate, the rate of compliance would have to fall to 67 percent.
 
The GD forecasts include a prediction for the size of the market in 2012 which suggests it broke through the GBP 2 billion barrier in net gaming revenues for the first time. In 2011, UK-focused operators likely earned around GBP 1.71 billion in net gaming revenues for the calendar year.
 
The data from GD points to an evolving and consolidating landscape, and notes the acquisition moves on Sportingbet and the performance of Blue Square.
 
In its UK report released last summer, GamblingData estimated that Rank plc's Blue Square was worth around 1.5 percent of the UK sports-betting market in 2011 while Sportingbet accounted for at most 1 percent of the current market. 888Sport – which is reliant on the Blue Square platform and the future of which must now be in some doubt – accounts for a further 1 percent of the market.
 
Market-watchers predict the trend to fewer suppliers in the space will only accelerate in the coming years, helped by the imposition of the POC tax.
 
Under these circumstances, it is possible that the headline prediction for net gaming revenue increases could moderate or even head into reverse if, as some operators fear, a heavier tax burden leads to a lessening of competition and leaving the product less attractive for consumers.
 
However, Gambling Data forecasts that the explosion in sports-betting net gaming revenue will continue through to the next football World Cup in 2014 and beyond.
 
The research firm reports that the UK sports-betting market grew by over 26 percent in 2012 to around GBP 874 million. Despite the lack of a major football tournament in 2013, the online sports-betting market in the UK is expected to grow by over 12 percent this (2013) year before the World Cup taking place in Brazil gives the market another 24 percent plus boost in 2014.
 
This would see sports-betting net gaming revenue push through the GBP 1 billion barrier to GBP 1.08 billion. GamblingData then predicts more modest growth of 7.2 percent in 2015 as the POC tax kicks in.
 
“What is interesting is that under almost every scenario, the projected revenues generated by a point of consumption tax is very much meaningful, both for the government and the operators. It is understandable, therefore, why there has been a protracted debate over its legality, its timing and its form,” said Daniel Stone, head of content at GamblingData.
 
“The wider tax avoidance debate taking place in the UK makes this a tricky moment for the operators. But, as our forecasts make clear, the importance of a stable tax and regulatory regime in the UK for many leading gambling names is also a vital factor.
 
"How the industry's leaders and the UK Treasury negotiate the transition to the new tax regime could prove to be one of the defining moments for the online sector.”