Opinion: What will be the impact of the UK POC tax?

So now we know the UK government wants to introduce the point of consumption (POC) tax on gaming at 15% and implement it by December 2014. As someone who has moved two sportsbooks over to Gibraltar, you may be surprised by my initial response. I personally do not have a major issue paying gross gaming taxation on sports betting and gaming revenue on two conditions.

Firstly, that it’s fair and everyone pays it. The main reason that so many companies moved their operations and management to Gibraltar was that they could not continue to pay 15% when others paid around 1%.

Secondly, the rate set and rules attached allows the industry to continue to prosper and, most importantly, gives good value to its end users. We need to learn from France where the ridiculous level of taxation has encouraged, according to ARJEL, significant levels of non-licensed betting and brought unfair and uncompetitive odds to the consumer.

Yet I do believe the UK tax rate should be slightly lower. At 10% the UK government still achieve its targets of minimising unlicensed activity and maximising the government’s revenue, all while ensuring competitive prices for the consumer. However, when the UK rate is compared to other European countries, it’s hard to argue that 15% is unfair.

What I would argue is that the horse racing levy needs to change as part of this new legislation. The levy is an archaic system where betting companies pay towards but have almost no say in the running of racing. I am fine for betting to continue to contribute to racing but I want to see the BHA involve the betting industry in their board and a smaller levy amount be introduced.

Due to the legislation, everyone will have to rationalise their costs. Cost control is not a high priority in most gaming companies – there is significant salary inflation and not many companies really run a lean machine. This will all change and the smart companies will start the change now. They will have to get their fixed costs down as the alternative is to cut marketing which in the long run will just hurt market growth.

There will be a reallocation of resources ““ I don’t think that the whole of gaming will leave Gibraltar as there are still significant advantages to staying put such as VAT and corporation tax rates – but I suspect that some areas of businesses will return to the UK. Technology teams, customer services, maybe even trading teams could be of better use in the UK rather than Gibraltar.

For the larger companies I believe this will be enough to continue to prosper but the smaller companies that don’t have enough slack in the business or economies of scale are set to suffer. Some companies operate at around a 15% margin and that will not even cover the POC tax. As such, the smaller companies will disappear, either being bought or closing down, while the larger operators will be able to reduce their costs and gain more customers and thrive in the long-term.

Sure, there will be pain. Sure, some will lose. But that’s always been the case in business. As for the larger operators, the companies that prepare for the cost rationalisation and plan for a successful transition to the new tax will be the winners.

Finally, it’s impossible to say if the POC tax will actually be implemented in December 2014 as planned. Firstly there is still the potential legal case from the some of the Gibraltar-based companies, and there is some merit to their legal arguments which the government will need to deal with before introducing any legislation.

Also, in my view there is a need for the Gambling Commission (GC) in the UK to ensure that non-licensed business are stopped from operating in the UK once the legislation comes in. This is not easy to do and I am not confident that the GC fully understands the online sector and black/grey market to do this effectively. If they can’t control this the whole thing could fail.