Betting tax

The Irish political landscape is in such a state of flux at the moment that you may have had to pledge allegiance to some crown or other before you bartered for the newspapers this morning, but at the time of writing, the Finance Bill was just a shade of odds-on to make it out of intensive care, and that is no bad thing.

The legislation relating to the taxing of betting by Irish customers with betting operators based off-shore is a tiny part of said Finance Bill. Well, tiny if your sole concern is the solvency of Ireland Inc., the ability to pay the wages of nurses and teachers, not so tiny if your world intertwines sporadically or entirely with the sport and the industry that is the racing of thoroughbred horses.

This is the legislation that has been eagerly awaited by all of racing’s stakeholders since An Taoiseach Brian Cowen announced last May that he would introduce measures relating to the taxing of betting that would secure the future funding of horse racing. He said at the time that it was his intention to have those measures in place by the end of the calendar year. We are only 25 days beyond that deadline now, which is a serious positive given everything else that has been going on in the last nine months.

The proposed legislation will set the tax rate at 1%, as announced in December’s budget, not at 2% as proposed in the 2009 budget, nor at 1.5% as proposed by the Labour Party. While that is not surprising, it will still come as a relief to bookmakers based here. The net will be spread to include all betting operators targeting the Irish market, those based off-shore who facilitate the placing of bets on-line and by telephone, thus spreading the tax burden beyond licensed betting offices based in Ireland. The tax will be payable on every bet struck by an Irish bettor with any firm on any event, not just with an Irish domiciled company and not just on horse or greyhound racing.

There will also be a licence fee. Betting operators targeting the Irish market will be required to pay a fee of something between €5,000 and €100,000, depending on the magnitude of their operation. Price discrimination at its purest.

The contribution that betting exchanges make will at last be settled. Betfair made a voluntary contribution of €1 million per year to Horse Racing Ireland between 2006 and 2008, but that arrangement ceased then because HRI determined that it wasn’t sufficient. It was an expensive cessation. As well as the loss in direct contribution, there were also lucrative sponsorship arrangements that were discontinued, and the facility for bettors to bet with the Irish Tote through Betfair was terminated.

The figure that Betfair contributed between 2006 and 2008 equated to around 10% of the betting exchange’s gross profits on Irish racing. Under the new legislation, they will be required to pay 15% of their gross profits from Irish-based bettors. Betfair seem to be happy enough with the new proposal so, if 15% of their gross profits from Irish bettors amounts to more than 10% of their gross profits on Irish racing, you can be sure that it doesn’t amount to much more.

Several questions remain. First, there is the question of whether or not the tax revenue generated can or will be ring-fenced for the funding of racing. That is at the heart of the legislation, there can be no doubt that that was An Taoiseach’s intention when he made the announcement last May. However, there is many a slip twixt cup and lip. The spirit in which something is intended and the reality that develops can be quite different, especially these days in Leinster House when everything that isn’t stapled to the floor is up for grabs.

There is nothing in the legislation as it stands to determine that the revenue will be used for the funding of racing. It is important that this be addressed, otherwise it is all a largely fruitless exercise from racing’s point of view. The tax revenue could ostensibly disappear into the national coffers, to be used to pay ex-ministers’ pensions, and then racing is back to going cap in hand on an annual basis, at the mercy of the impulses of whatever government we end up with.

Secondly, there is the question of the amount of funding that will be raised. The government estimate that the spreading of the tax net could garner an extra €20 million in revenue. Add that to the €31 million that was generated in betting tax last year, and that leaves €51 million, which is still €6.3 million short of the €57.3 million contribution that will be made by the government to racing this year, and even that figure is 25% down from the €76.3 million that was contributed in the good old days in 2008.

Thirdly, there is the policing issue. How will betting operators based in Gibraltar, with no physical presence in Ireland, be convinced that it is in their interest, that it makes good business sense, to pay a licence fee and a percentage of their turnover from Irish customers? Perhaps most will be voluntarily compliant, but you can be certain that all will not. What sanctions will be used against them if they choose not to comply?

Finally, there is the question of what products will be subject to the tax, sports betting products only or all products offered by the betting operator: poker, bingo, casino games?

That detail will be contained in the Betting Amendment Bill, which should be imminent.  We can probably wait another few days.

© The Racing Post, 25th January 2011