Leading online operator LeoVegas has cited the tax rate in Denmark as evidence that a 21 per cent Remote Gaming Duty on games of chance will not impact the running of its UK business.
In Monday’s Budget, UK chancellor Philip Hammond confirmed that Remote Gaming Duty would rise six per cent, to 21 per cent, effective October 1, 2019 – the same time that the long-awaited stake reduction on fixed-odds betting terminals (category B2 machines) will come into play.
Details released by the Treasury following the Budget announcement forecast a £1.22bn increase in income for the government across the first five years.
Irena Busic, communications director at LeoVegas, said: “We are active in other regulated markets with a tax rate in that region, for example the 20 per cent tax in Denmark where we are still able to run a sustainable and healthy business.”
The revised RGD rate has been criticised as the cost of the FOBT stakes reduction will not have been established by the time of its introduction.
“The decision to increase the tax was no surprise since the discussion has been ongoing for quite some time,” Busic conceded.
“It is also a year before the tax is implemented, which is good since the market dynamics have some time to settle – for example the suppliers, affiliates and media partners take their part of the tax – meaning it is not just the operator that take the full effect of the tax.
“Of course, we want to use our size to find economies of scale to absorb this increased tax. For sports, it is the same level of tax as before so that product vertical will not be affected.”
While an established operator like LeoVegas has built a sufficiently robust business to offset this tax hike, the UK market will become less attractive to small operators.
It is also possible that the increase could lead to players turning to the black market if licensed operators are forced to squeeze margins on prices, reassess bonusing or cut back on affiliate marketing.
LeoVegas uses the term ‘channelisation’ to define the proportion of online gambling that occurs within the licensing system. In 2016, a report commissioned by the Swedish government found that 15 to 20 per cent was the optimal tax rate for high channeling and favourable tax returns – which perhaps explains its decision to adopt an 18 per cent tax on gross profits within the country’s new regulatory framework from January 1.
“There is a clear correlation between channelisation and tax rate,” explained Busic. “A high tax rate means a lower level of channelisation. We believe a high channelisation is very important in order to retain an attractive market for professional and sustainable operators, and one in which player protection is high up on their agenda.”