Tax changes could open the door to offshore bookmakers

Tax changes could open the door to offshore bookmakers

Monday, July 4, 2016 Posted by Andy McCarron
The South Australian Point of Consumption Tax might only be the tip of the iceberg for bookmakers

An already bad year for the corporate bookmakers in Australia got appreciably worse last month when the South Australian state government moved to institute a Place of Consumption (PoC) tax and the General Election appears to have made the situation deteriorate further.

The news that the state government of South Australia had announced a 15% PoC to be introduced in 2017 will have come as no surprise. The decision was prefigured by a discussion paper issued in February 2015 which proposed just such a regime. Following discussions with the Australian Wagering Council (AWC), the state government released a response in June last year which said it was minded to introduce the new tax.

The ray of good news from the process to date is that South Australia failed to gain consensus in its discussion with the other states over the proposed move. Hence, the legislation is couched in precise terms, targeting not just those corporate bookmakers trading into the state via Northern Territory licences but also home-grown operations.

State Treasurer Tom Koutsantonis, in announcing the news, said: “The betting industry is rapidly changing and our tax regime needs to change with it. If betting companies are making profits from South Australian punters they should be paying tax in South Australia, not in whichever jurisdiction their head office and servers happen to be located.”

He added: “Betting companies who will be liable to pay the tax include UBet, other South Australian-licensed bookmakers, authorised interstate betting operators (including TABs in other states) and corporate bookmakers such as Sportsbet and Ladbrokes.”

The AWC once again warned that any moves to make the corporate bookmakers less competitive would only give a boost to offshore-licensed operators who would be only too willing to step into the competitive breach.

“The licensed online wagering operators who do remain in the marketplace will have little choice but to offer their customers less value in terms of the prices available to bet on races and sport, in an attempt to absorb the increased tax burden,” said AWC chief executive Stephen Fletcher in a press release last month. “This will drive South Australian punters to illegal offshore operators in search of better prices and more diverse products.”

Yet although the state hopes to raise A$9m from the tax in the second most populous state after New South Wales, analysts at Morgan Stanley suggested the predicted tax take suggested the impact would be small if the measure was contained to just the one state.

However, they do go on to add that if it sets a precedent for other states to follow then a 15% PoC across all Australian revenues would reduce Australian EBITDA at by between 50% at Paddy Power Betfair (which own the leading corporate brand Sportsbet) to 90% at Ladbrokes. Yet the likelihood of this coming about remains slim and the probability of any other states taking up the South Australian lead is debatable. Indeed, in its response the AWC reiterated that they already pay both general sales taxes and product fees which Morgan Stanley suggest are worth around 25% of gross gaming revenue.

Said one source within the Australian gambling industry: “It is feasible that other states will follow South Australia’s lead, but they would need a uniform tax rate for all operators whether they be intrastate or interstate. Therein lies the difficulty. The race-fields/product fees does this to some extent.”

This at least will likely bring some relief to the corporate bookmakers, however, it isn’t the only pressing issue for them. Earlier in June, the government of the Northern Territory apparently bowed to pressure from central government over the controversial click-to-call services being offered by all the major bookmakers.

The corporate bookies had been well aware for some time that they were skating on thin ice with regard to click-to-call given that it went against the spirit of the Federal online in-play betting ban if not the actual letter of the law.

Totally Gaming Says: "The ban against online in-play is likely to continue even after this week's election at the start of July, although the hung parliament is focusing attention on who might hold the balance of power, in particular whether renowned anti-gambling independent Nick Xenophon is positioning himself as a ‘king-maker’. This would likely be a blow for the Australian gambling sector generally, but one specific argument he has been progressing of late is with regard to a potential ban on the advertising of sports-betting, which is not a good outcome for the betting industry."

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