How a rise in turnover tax will impact Ireland’s betting market

With the Irish Budget for 2019 set to be announced today, it is being rumoured that the Minister for Finance is once again considering the thorny subject of raising the rate of betting tax from 1% to 2%. Such a change would reportedly raise an estimated €50m per year for the Irish exchequer. However, there are several reasons why the Minister for Finance should be slow to simply increase the rates of betting tax at a time when it is generally accepted that the regulatory regime in Ireland needs modernisation.

The Irish Department of Justice’s Regulatory Impact Assessment that accompanied the publication of the Courts and Civil Law (Miscellaneous Provisions) Bill 2017 recently noted that the existing regulatory system in Ireland “….is now considered out-of-date” and that “the legislation…is seen as outdated and not fit for purpose”.

In 2017, the findings of a Department of Finance public consultation into the appropriate rate of betting duty were inconclusive.  The findings of the report concluded:

“Further analysis and economic modelling specific to the Irish betting environment would provide more certainty on the appropriate tax rate to apply and the wider effects of such a change on the betting market and wider social and policy implications. This will need to be considered alongside policy objectives.” Paragraph 117 Tax Strategy Group – TSG 17/07 General Excise.

Therefore, any proposed change in the rate of duty will need to be carefully considered. They also need to have regard for how the change would advance the widely accepted principles of gambling regulation in striking an appropriate balance between encouraging commercial and responsible gambling and protecting consumer and vulnerable gamblers.

Any increase in the rate of turnover tax will be particularly damaging to the retail sector in Ireland, particularly for small to medium operators. Retail betting operators constitute the largest share of the betting market in Ireland with €28m of the total betting duty yield of €50.7m in 2016 coming from the retail sector.

The number of licensed retail premises has fallen significantly in Ireland since 2008 (1,365 in 2008 to 856 in May 2017) with further consolidation and closures expected. With the rising cost of commercial property in Ireland and the decrease in profit margins driven by increased competition in the sector, it is likely that a further increase in turnover tax would make many operators unsustainable resulting in closures and a subsequent loss of jobs and tax to the exchequer.  Therefore, the proposed increase in exchequer funding of €50m may very well be a lot less because of these changes.

In addition, with the increasing popularity of betting exchanges in Ireland, any proposed increase in betting tax applied to betting operators needs to be evaluated in terms of the likely impact that such a change would have on operators versus betting exchanges. Increasing tax on betting operators may simply encourage punters to cease betting with betting operators and instead bet on exchanges where such taxes are not currently payable. Betting exchanges are currently subject to 15% excise duty on their commissions.

Careful consideration also needs to be given to whether an increase in the rate of betting tax would drive customers to black market operators who operate remotely and do not pay the existing 1% rate of tax. Customers are sensitive to pricing, so if black market operators can offer more attractive prices it would be a natural attraction.

Increasing betting taxes does not in any way deal with the wider issues of protecting customers, particularly vulnerable customers.  These are key issues which are not currently being adequately covered by the regulatory regime in Ireland and require further attention.

Having regard to the above, the time may not be right for the Minister for Finance to increase the rate of betting tax.  Any increase in the rates of tax that apply to betting in Ireland needs to be considered as part of an overhaul of the current outdated regulatory regime which exists in Ireland for betting and gaming.  Any changes that are introduced need to strike an appropriate balance between encouraging commercial and responsible gambling operators and protecting consumer and vulnerable gamblers.

Author: Alan Heuston, partner and head of the Betting & Gaming Group, McCann Fitzgerald 

Alan Heuston is a partner in McCann FitzGerald’s tax group and leads the firm’s betting and gaming group. Prior to joining McCann FitzGerald, Alan spent a number of years as Director of Tax in Paddy Power Betfair Plc, with responsibility for managing the group’s tax affairs across multiple jurisdictions. As such, he has significant first-hand experience of the regulatory and taxation aspects of the betting and gaming sector.