Martin Lycka: Gambling taxation with representation…

Martin Lycka, Entain Plc’s Senior Vice President of US Regulatory Affairs & Responsible Gambling, comments on the thorny yet unavoidable issue of industry taxation and why operators may hiss at feeling short-changed…

Jean Baptiste Colbert, the Sun King’s First Minister of State, once quipped that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”. If I were to liken our industry to Colbert’s goose the feathers can take on a variety of shapes and colours: GGR, NGR, handle/volume/turnover, (very rarely but still) profit … 

I will make an assumption that you, dear reader, are familiar with these terms. I’d rather concentrate on whether we’re ‘hissing’ when taxed, and what ‘representation’ we get for our taxation, in terms of making contributions to jurisdictions in return for the privilege to lavish our services on their good peoples. 

There’s another economist who almost rivals Colbert – Snoopy. The dog once famously wrote to the IRS to ask them to kindly cancel his subscription and remove his name from the list. I’m not entirely sure where the world’s most beloved beagle has got to with his request, but it would appear unlikely that this could have been an efficient way of avoiding the need to hiss.  

The simple truth is that gambling taxation is headed in the same direction as gambling regulation. Once upon a time, we inhabited a pristine territory almost free from regulation, but these times are in the past. And in the past, they shall remain. In return for being prepared to take the plunge and throwing ourselves headlong into the most complex licensing processes we expect to gain ‘representation’ and legal certainty in the form of a licence; that coveted, sometimes even glitzy, deed bestowing upon us the right to enable customers to play on our sites or shops legally and responsibly. 

Taxation comes hand in hand with the gift of licencing; and in some instances even without it. One of the quirks of the world’s taxation systems means that tax may be imposed on unlicensed and potentially even illegal supply. Should we then be minded to agree with Winston Churchill when he stated that “there is no such thing as a good tax”? Or should we rather look at the bright side and consider gambling taxation a necessary evil that in the grand scheme of things represents the price to pay for the privilege of being a legitimate actor in our space. I have no choice but to give the ultimate lawyerly answer – it depends. 

Let me explain myself. The ‘hissing’ is not about paying taxes. Paying them is a must and a given; it gives us all the privileges we’ve talked about. Yet there are two circumstances where we might be allowed to feel short-changed:

  1. the tax is not workable as it fails to reflect the nature of our products; 
  2. the tax-related red tape is so onerous that ‘it makes War and Peace breezy’. 

The second shortcoming can only be rectified by means of simplification of the rules and cutting down on admin. The first issue is a rather more complex matter. 

In a nutshell, there are two competing approaches to determining the gambling tax base – taxation of gross gaming revenue, or sometimes stakes less winnings, and taxation of turnover or handle. For simplicity, I shall brush aside any considerations associated with the deduction of bonuses. 

Certain governments would (or in some cases would have in the past) argue that taxation of turnover is much more straightforward; it only requires application of the tax rate to the total volume stakes made. It also, apparently, prevents the taxpayers from doing any magic with their revenue figures. 

And yet, a number of studies have over the years clearly demonstrated that GGR based taxation (with allowance for taxation based on commission or rake as appropriate for certain products) is a far more efficient way of collecting tax from our industry. It far better reflects the applicable revenue generation mechanics and the nature of the products on offer; crucially and critically it also allows for far higher channelization rates and undercutting of the sadly still persistent black markets. 

Ergo, the more the decision-makers kindly take this advice to heart, the less we shall be hissing. 

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The statements made in relation to this article, do not necessarily reflect the opinions held by Entain Plc.

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