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40% tax hike for UK’s online gaming operators next year

On Monday, the UK’s Chancellor of the Exchequer Philip Hammond, confirmed that the Remote Gaming Duty (RGD) will increase from 15% to 21% as per the annual Budget. The discussion about this hike has been on since May this year and according to several industry experts, it was estimated that the hike would be in the range of 20% to 25%. According to the statement released, this tax increase will only happen a year from today i.e. October 2019. This is being done in their words, “to give operators time to prepare for the rate increase,”  

That timeline provides a small measure of relief as intitially the industry had feared that this change would be implemented at the start of the new tax year i.e. April 2019.

Regarless, the move from 15% to 21% which is a 40% increase is a quite a significant burden. The UK market is a highly lucrative for online gambling operators and that in turn leads to some serious competition between the players. It is unlikely that any of the major brands will stop doing business but the tax hike will lead to a situation where some of that burden will be passed onto the customers and the rest will be absorbed by the companies.

The UK Government in its reports has estimated a revenue of over to £250 million once the first full tax year is complete i.e. April 2020 to 2021. Assuming a growth projection of 4% to 6% a year, the online gambling industry will get to the £300 million mark in a short span of 5 years. The revenue generated from the RGD is to offset the loss of revenue from the Fixed Odds Betting Terminals (FOBTs) where the maximum bets have been reduced from £100 to £2. The resulting shortfall in the revenues is expected to be made via this increased tax.

There has been resistance to the idea with brands like William Hill claiming that 900 shops (having FOBTs in them) and 4,500 employees will have to be let go. Online operators are also critical of the fact that they are paying for a side of the business they were not necessarily a part of. For instance, PokerStars, 888, Unibet and other similar poker and gaming operators did not have any physical shops holding FOBTs and thus made no revenue from them.

The government though believes that the hurt is a short term one if at all with negligible negative impact from the duty increase. “This measure is expected to have a negligible impact on a small number of medium-sized and large businesses who provide online gambling services to UK customers,” it was stated in the official impact assessment. “There is no impact on small and micro businesses,” it was also stated, though it was noted that, “if the tax rate increase is passed on to consumers,” this measure will have an “impact on individuals or households through a change in odds.”

Industry analysts however are not so sure and believe that the smaller entities might not be able to survive this tax hike and will either shut shop or be bought out by bigger gaming companies.

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