Taxation as a tool to create attractive regulated markets

As a company with a mission to help governments take control of ecommerce taxation, we have seen regulators and tax collectors playing catch-up as a result of changing consumer behaviour and evolving technology. This is especially true in developing nations who desperately need to increase tax revenue as a percentage of GDP to provide funding for critical infrastructure.

Helping a government understand how the payment industry works and providing them with a state-of-the-art gateway affords the opportunity to evolve channelisation strategies to capture hitherto untapped flows, and in some scenarios, bifurcate settlement flows to recover duty in near real-time.

Countries around the world have become increasingly vocal about their intent to tax their respective ecommerce industries effectively and robustly, with cross border flows being of particular concern. A near constant in our discussions with governments has been online gaming, and the challenges associated with controlling and taxing such a dynamic sector.

There are many competing voices in this space, but we can draw on a number of learnings and principles on which to try and shape thinking, especially in Africa with its 54 distinct markets.

We have seen how the EU failing to harmonise gambling activities has led to a difficult and fragmented operating environment with myriad country specific conditions and wide variations in tax rates. This has led to frustration from the industry’s leading operators holding remote gaming licences from strong jurisdictions such as Gibraltar, Malta and the Isle of Man.

In order to quickly evolve emerging markets, we are advocating the issuance of remote operator licences by countries. This coupled with a tax on deposits and operators connecting to a payment portal, ensures the right tax is paid and reduces any scope for underreporting that plagues many developing markets where self-reporting on Excel spreadsheets leaves much to be desired.

As new markets regulate, setting the right tax is crucial. A highly subjective topic, we have yet to see a better study than the Copenhagen Economics Report commissioned by the Swedish Trade Association for Online Gambling in 2016.

The study illustrates the impact of tax as a percentage of GGR and channelisation of market participants, essentially reconfirming the adage that less is more and defining the goldilocks zone of between 15-20% of GGR being the best range for both taxes raised and reducing incentives for avoidance.

The gaming industry has come far in the 25 years, and as a number of globally significant brands continue to evolve, there is a massive appetite for additional regulated markets to enter. Shareholder and supplier pressure are increasingly discouraging grey market participation, and the provision of new fast track entry to become regulated in additional markets is a high priority to most business development teams.

Removing the time, cost and complexity of a new country entry is a win-win situation for both governments and operators. Furthermore, responsible gambling policies are easier to introduce in a regulated and competitive marketplace than in a weakly regulated or unregulated free-for-all.

While acknowledging that a tax based on deposits is a blunt instrument, most objections are predicated on the concern that the rate can be readily dialled up, but this can be easily tackled by locking in a rate for the duration of the licence and educating the tax authority on market behaviour.

By way of illustration, our first project with the National Lottery Regulatory Commission in Nigeria sees 4.5% of player deposits being taken in a bifurcated settlement flow. This equates to approximately 18% of GGR for the average operator, a rate that is accepted by the wider industry as manageable.

We are alert to mature markets, and some of the initiatives witnessed over recent years have driven unintended consequences, such as a reversion to unregulated sites by players when overly invasive measures are imposed on them, or tax on player winnings acting as an incentive to seek alternate destinations for their activity.

As ever, it is a synthesis of competing demands, but the overarching objectives are optimisation of tax revenue and building a dynamic marketplace that drives the best player experience and value. If we achieve optimum regulated market participation, we can work towards enshrining responsible gambling at the heart of the ecosystem.

This is not the place for a detailed discussion on responsible gambling and the myriad challenges that are exposed in trying to find the right approach that does not expose player data and be overly invasive on operators. However, we are looking closely at a collaboration with HAL, Hare Analytics, an Oxford University spin-out, that is showing great promise and manages to overcome many of the objections from operators that other modalities had triggered.

By ensuring governments and regulators better understand how the payments ecosystem behaves and evolves, and approaching tax collection, enforcement and monitoring through streamlined technology, we can drive a paradigm shift towards a point of consumption tax methodology and herald a new era in rapidly opening new regulated markets for responsible gambling operators.

David is the co-founder and CEO of e-Technologies, a UK-based fintech company helping global governments take control of e-commerce taxation. David was at the forefront of digital businesses, helping establish Europe’s first full service digital advertising agency in 1996, opening offices in London, Paris, Madrid, Milan & Hamburg.

In 2002 David co-founded St Minver, a Gibraltar licensed gaming business, providing white label gaming services to a number of global brands, including Virgin, Gala and Yahoo!. The business grew successfully and was bought by GTECH/Lottomatica in 2008.

David then invested in various technology and payment businesses, and in 2018 co-founded Moneybite.com, a Malta-licensed crypto payment processing and OTC business that he remains a partner in.