March 15, 2018 by

New 15% Tax Might Send Aussie Gambling into Tumultous Waters

With countries and states facing severe budgetary shortfalls and constraints, they are all looking for ways to raise revenues.  One way is to tax gambling.  Taxes have been levied against land based casinos for years and now jurisdictions are looking for sound ways to tax every online casino, sports betting site, fantasy spots sites, and any other gambling site. But…..there are those who warn the government that taxing these gambling opportunities could actually bring in less revenues than they do now. Let’s see how that would look.

Crown Resorts operates Betfair Australasia in the Australian Outback.  This is Befair’s smallest online betting site and Crown has warned that a proposed new tax called the Point of Consumption Tax (POTC) may have serious business effects on Australasia, so much so that it might completely backfire on the Australian government and produce a loss of tax revenue instead of the anticipated rise.

Similar Tax; Different Name

A POTC tax is called different things in different places such as sales tax or value added tax.  The differences between these three taxes are negligible and not relevant to the present discussion.

Warning: Public Won’t Pay this Tax

The gist of Crown’s argument is that Befair Australasia is a legal betting site but if the proposed POTC is implemented, it would necessitate Betfair Australasia raising prices to consumers and could send a critical mass of consumers to illegal and untaxed sites.

More Research Needed

The complaint became public in late February and quickly some critics of Crown’s position presented the other side of the issue.  For instance, Betfair Australasia might simply absorb the tax itself.  The company is in business to accept bets and it would be shooting itself in the foot were it to allow consumers to go to rival and illegal sites.

Betfair can also do some research into how much it can increase prices to consumers and maintain their business.  The proposed tax is 15% and it is probable that consumers would flee Betfair were it to try to pass the entire tax onto them.  But would they flee if Betfair passed on a 5% increase in process and absorbed the other 10%?  After all, the alternative is to go to illegal betting sites which have safety concerns in addition to their basic illegality.

Betfair also needs to determine what, other than gambling, would consumers cut down on if they had to absorb a critical mass of the new tax.  Consumers might cut down on travel which would actually mean that customers would be near Betfair Austalasia for more days each year and might bet more!

Consumers might cut down on any number of other purchases leaving some money over for an extra bet or two.  Betfair could also lower prices in order to generate more consumption.  Profiting by mass consumption is a tried and true formula that has made many companies super rich.  Case in point: McDonald’s.

Governmental Short-sightedness

It is not only Betfair that has an interest in the outcome of this tax.  The government hopes to gain much needed tax revenue.  It seems that they also don’t know what the critical level of tax might be before customers abandon the product being taxed or abandon the politicians who imposed the tax.

The government also seems oblivious to the fact that there are small operators in the legal gambling business and a 15% tax might put them out of business.  Small operators generally don’t have the cash flow to absorb excessively high extra costs which a tax of this sort is.  Small operators would be absorbed by the larger operators.

It is not at all certain that having large operators in the gambling industry buy out smaller businesses is good for the country or bad for it.  Jurisdictions see legal gambling as a massive source of revenue.  Rather than look for ways to cut spending, governments everywhere look for ways to increase revenues.  The only way to do so realistically is to raise taxes but the tax has to hidden in some way.

The government might not care that the bigger betting venues get bigger as a direct result of the government’s actions but it is also a gamble of sorts for the politicians.  If voters come to understand that it was government action that forced the little guys out of business, it could become problematic for said politicians at a subsequent election.

A tax on gambling might seem to be well-hidden as many gamblers simply like to gamble and don’t look at the bottom line.  If a restaurant increased prices by 15%, patrons might not come back.  They might decide to eat something else for dinner.  If all restaurants raised prices by 15% because of a new tax, revenues might drop as people choose to eat at home instead.

What taxes giveth taxes can also taketh away.

Integrity

Tim Moore-Barton, head of Betfair Australia, made possibly the soundest point against the government going headlong into a POCT at this level.  Moore-Barton said that it was unlikely that Betfair could absorb even a small fraction of the tax so it would be have to be passed on to customers.  That would send customers overseas or to illegal sites that operate in Australia.  That we’ve already covered above.

The telling argument is that sports are different than casino games.  The latter are run by the Random Number Generator (RNG) which determines very outcome of every game.  Sports cannot be scripted as Spike Lee famously said.  As sports betting becomes ever more prevalent, it becomes a full-time occupation simply to monitor betting patterns and other activities to determine if the integrity of the game has been compromised.

Moore-Barton argued that unregulated betting sites would have no oversight and this would call into question the integrity of sporting events.

Likely Even if Foolhardy

At this stage, it appears that the tax will go through.  Similar taxes were imposed in Gibraltar and the Isle of Man in 2014.  Not enough time has passed to properly assess the impact of those POCT’s so the Australian government has no powerful statistics that might argue against imposing this tax.