Czech Republic plans gambling tax hikes. Experts’ opinions.
The Czech Ministry of Finance has announced plans to impose a new regime with a gambling tax hike.
The current flat tax on gambling is 23% of gross gaming revenue. Slots are charged with a higher tax rate (35%) since the authorities consider them to be the most socially hazardous.
How will the tax system change?
The government plans to organize a tiered tax system originally put forward several years ago.
The proposed tax regime proclaims a 30% tax rate for lotteries, bingo, and live games: they are referred to as moderately hazardous.
The tax on sports competitions, drawings, and small-scale tournaments will be raised to 25% as, according to the top executives, they are the least dangerous gambling activities. If the changes are approved, they will come into force in January 2020.
Besides, in March, the Czech government announced it was considering some changes to its online regime. Currently, online platforms must have land-based venues in the Czech Republic at which online customers have to register. The government plans to cancel this requirement as it is viewed as overly favorable to local gambling operators who already boasted a significant retail presence.
We have asked the experts in the legal sphere to comment on the situation and answer questions:
- How will tax hikes affect the Czech gambling market?
- Will the tiered tax system justify its goals?
Jan Řehola, the lawyer at Petroš Sedláčková Legal:
1. The Czech gambling market currently undergoes huge restructure. All effects of changes implemented with new Gambling Act (which is fully in force from the beginning of 2017) are not analysed. In this situation, it is not the right moment to come up with tax hike. This move by the Czech Ministry of Finance is even more surprising as we had experienced a decline in tax revenue in half, after the tax rate for slot machine and VLT’s has been increased from 28% to 35% in 2017. Not all tax rate spikes need to bring more revenue to the state budget, and the Czech Ministry of Finance should be aware of this due to very recent experience.
2. I do not think that flat tax rate for all verticals is really the ideal scenario as all games have its characteristic, different pay-outs and diverse operational costs. Before tiered tax system is introduced, an in-depth analysis needs to be performed in order to evaluate all these peculiarities. Only if this analysis is done right, the tax system could be fair and balanced and, at the same time, acceptable for legal operators. I am afraid that proposed gambling tax hike does not meet all these requirements.
Vojtěch Chloupek, Partner at Bird & Bird:
1. The tax hikes will not probably affect the Czech gambling market too much. The approach of the Czech regulator, the current tax rates, as well as the size of the market have already deterred a number of foreign operators to enter the market. So, it seems rather unlikely to see someone leaving. The incumbent local operators will probably have no other option but to adjust their business plans to the new tax regime. Of course, the current proposal of the Ministry of Finance should get an approval by the government and then pass through the Parliament first.
2. Talking about if the tiered tax system justifies its goals, that depends on what the goals are. According to the Ministry of Finance, this system will better differentiate the types of gambling based on how dangerous they are to the society, which should apparently contribute to safer gaming environment. In my view, this is only a superficial argument as I do not quite believe the more substantial 7% increase of tax on lotteries, bingo and live games will have such effect.
On the contrary, tax increases can generally lead to higher risk of players switching to black market. It is therefore likely that the real reason for the tax hike is the second argument mentioned by the Ministry of Finance: increase of tax revenue. Given the drop in tax revenue in 2018 and estimated for 2019, it is indeed understandable that the Ministry of Finance is looking at ways to improve the numbers and, obviously, allowing more licensed operators on the market is not the preferred option.
Gambling regulations will be discussed by experts in legal sphere at the Prague iGaming Affiliate Conference.