Betting tax

Here we go again, betting tax and the funding of Irish racing. The government’s plan to increase betting tax from 1% to 2% in the last budget was knocked on the head at the 11th hour, the Minister obviously convinced by some fairly persuasive arguments put forward by the bookmaking fraternity on the negative impact that such a move would have had on the betting industry. Now the plan is apparently to introduce a 2% tax on winning bets. And that’s completely different – how?

Frankly, if this is the government’s anxiously awaited solution to the funding problem – nay crisis – that exists in Irish racing, it is desperately disappointing. At present, there is a 1% tax on betting turnover, which is absorbed by the bookmaker. The tax resulted in a return to the exchequer in 2009 of €31 million, a poor return on a total estimated betting turnover of €4 billion, when you consider that in 2001 the tax return on an estimated €1.3 billion was €68 million.

The initial mathematics, the matchbox economics, were simple: double the tax, double the tax revenue. If a 1% tax yields €31 million, then a 2% tax yields €62 million, and we are back close to 2001 levels, when the tax take funded the industry. Right Brian? Wrong Brian. There were a myriad of reasons why it wouldn’t work, including the fact that only the very largest bookmakers would be able to absorb a 2% tax. It would have led inevitably to shop closures, business closures and job losses, and we need just about every job we can keep these days Minister.

When An Taoiseach Brian Cowen announced in May that his intention was to introduce measures relating to the taxing of betting that would secure the funding of horse racing going forward, it was greeted by racing’s stakeholders, quite understandably, with every emotion in the spectrum from relief to jubilation.

We wondered how it would happen. What measures would be introduced? What was this ground-breaking piece of legislation that would ensure that overseas betting providers would contribute to the Irish exchequer? How would Ireland succeed where just about every other jurisdiction that tried to achieve the same result had abjectly failed?

The legislation may be on its way, it may be that the brains that draft these things are caught up with other more pressing governmental business (take your pick), but the intention was to have the legislation in place by the end of this year, and the leaves are already starting to fall from the trees. The fear is that this 2% tax on winnings is the intended silver bullet.

One suggestion is that punters would be made to self-assess, which would be an interesting one. Another suggestion is that the legislation would prevent bookmakers from absorbing the tax, that the bookmaker would not have to suffer the cost. The punter would have to pay it, the supposition being that he wouldn’t mind paying a tax, because he had a winning bet.

That hypothesis is flawed on a number of levels. Firstly, the punter would mind. Punters are more price and value conscious these days than ever before. The majority would not pay tax on a winning bet with one firm when they could bet with another tax free, on the internet or over the telephone. Secondly, because of this, bookmakers would find a way to absorb the tax, through concessions and incentives, and then we are back to where we were last year, the bookmaker absorbing the costs and the slippery slope to to unviable businesses and job losses.

The difficulty with the introduction of new betting legislation is that the indigenous organisations would be penalised while the foreign operators targeting the Irish market probably would not. You can easily enforce new betting legislation on Paddy Power or Boylesports, who are based here, but how do you get a Gibraltar-based company to comply?

Paddy Power employ over 700 people in their head office, Boylesports employ 250 in theirs. Last year, Paddy Power were able to create 100 new jobs in their head office because of the expansion of their business overseas. It is the quintessential internationally-faced Irish-based industry that is so desperately sought in these difficult domestic times. To penalise Irish betting firms for being domiciled in Ireland just doesn’t make sense.

It looks like the idea to establish Ireland as an international tax-free hub for betting operators – thereby creating a significant benefit both in terms of job creation and tax revenue – has gained no traction at government level, which is a real shame. Failing that, a method of ensuring that foreign-based operators contribute has to be found. Taxation may not be the way to do it, because of the difficulty of enforcement.

It may be that a licensing arrangement is the way forward, that all betting operators are made to pay for a licence before they can accept bets from Irish-based punters, or advertise in Irish-facing media. Even assuming that such a measure would not raise heckles in Brussels, it still presents difficulty in terms of enforcement because of the proliferation of international and non-traditional media. However, it is important that foreign operators are allowed to opt-in in order that they can reap a benefit rather than be threatened with sanctions if they do not comply. More carrot, less stick.

Above all, it is imperative to ensure that Irish-based firms can compete with foreign-based companies on a level playing field. To do anything else would be to take the silver bullet and shoot yourself in the foot.

© The Racing Post, 28th Septebmer 2010