Q&A: Irish bookmakers on dealing with the rise in turnover tax

In the waning months of 2018, the Irish government announced it would raise gambling taxes from 1% of bookmaker turnover to 2% from January 2019, with the stated aim of providing additional funds towards problem gambling initiatives in the emerald isle.

A hugely controversial measure, the proposed taxation rise drew consternation from the Irish gambling industry, with bookmaker Paddy Power claiming that as much as £20m would be wiped from its revenues if implemented. It is also estimated to cause more than 1,500 job losses in Ireland, with retail bookmakers being hardest hit.

Following weeks of lobbying by the Irish Bookmakers Association, the Irish government confirmed it would conduct a full review of the impact of the tax rise, presenting its findings at the end of the first quarter of 2019. Sharon Byrne, head of the Irish Bookmakers Association talks to EGR Compliance about this and the potential fallout from the tax change.

EGR Compliance: Do you believe the Irish government’s Tax Analysis will ultimately vindicate the IBA’s position that this tax will be highly detrimental to the Irish sports betting market?

Sharon Byrne (SB): In a report we commissioned, DCU professor of Economics Tony Foley concluded the Exchequer would be a net loser if the increased betting tax went through in its current form. He said: “Overall, the negative Exchequer impact of the closure of 400 bookmaker shops could be about €35m. The Exchequer losses will be in excess of the gain from the increase from 1% to 2%.

“If gross margins could be so easily increased without adverse business consequences the industry would already have done so and be operating on higher gross margins and would have avoided many of the previous closures.”

Professor Foley concluded that the 100% increase in turnover tax would threaten 2,400 direct and 864 indirect jobs in the betting sector and could lead to the closure of 400 stores across the country. His analysis found the current effective tax rate on profits is 614.7% for the smaller betting shop and 57.1% for the large shop. A 100% increase renders the smaller shops unviable and significantly removes the profit for larger shops.

We are confident that the governments review will agree with this analysis and hopefully consider introducing a taxation model similar to the one we have proposed. This is not about how much tax is raised but about how it is levied. A 10%/20% gross profit tax model is fully costed, is progressive, has full industry support, is politically supported, is legally sound, will return over €25m additional revenue to the exchequer and will save thousands of jobs at the same time.

EGR Compliance: What’s next for the IBA given that the tax rise has now taken effect?

SB: We will continue to work hard to ensure that all information needed by the Department of Finance during their review is given to them, so that the Minister for Finance can see the severe unintended consequences of the 100% increase in betting tax, that took effect from 1 January this year. A 100% increase in any tax is unsustainable for most businesses, but in a business that is driven by high turnover and very low margins, and where the cost must be borne by the bookmaker it is totally unsustainable.

EGR Compliance: What would have been an acceptable compromise between safeguarding problem gamblers and preserving the Irish sports betting market?

SB: There is no compromise. Just an absolute requirement, that any gambling operator must ensure they have all the available safeguards and processes in place to keep gambling fun and to protect people that are underage or susceptible to problem gambling.

Our fear over the 100% betting tax increase, is that it will cause 300-400 Irish betting shops to close. While some of this business will go online or to other betting shops where there are a range of customer protections, a lot of it will go to illegal operators in pubs, internet cafes, etc.. where there are no customer protections or age verification measure. This is another very serious unintended consequence of the 100% increase in tax and we have been working hard to highlight this point to the government.

EGR Compliance: Do you plan any further challenges to these proposals?

SB: We will wait and see the result of Minister Donohoe’s review. I cannot say for certain whether there will be future challenges or not, but I can say for certain that a 100% increase remaining in place will only cause job losses and shop closures, with less value for customers and a steep rise in illegal operators who have no customer protections or age verification measures in place.

EGR Compliance: Can you speculate as to what the Irish sports betting market will be like in a years’ time, should these changes be implemented?

SB: It will certainly be a different market place, with almost no independent operators left providing a bespoke, local and more personalised service for customers. It will see illegal gambling operators increasing leading to a significant loss in taxation and complete lack of customer protection.