Ukraine Digital Transformation Minister mulls gambling regulation reform

Ukraine Digital Transformation Minister Mykhailo Fedorov has reportedly said he will consider reforming the Ukrainian gambling market to attract more international operators.

In an interview with Forbes Magazine, Federov acknowledged that the nature of the industry in Ukraine had changed since its launch in 2021 and that this evolution would require a different regulatory approach to that employed under the previous regime, making reform a necessity.

“We analyzed all the processes and functions of the Gambling and Lottery Regulatory Commission (KRAIL) and formed a certain vision. Now we are structuring it in the format of a draft law. Next, we will see whether the Verkhovna Rada will support it or not,” Federov said.

“We have already presented our vision and work to the profile committee of the Council, we have received feedback, we are finalizing it. I do not know how events will develop in the Council. We proposed a solution to automate and clean up corruption,” he added.

In September, the Ministry of Digital Transformation was given responsibility for regulating Ukraine’s gaming market, replacing KRAIL, and has pursued an agenda including the automation of licensing and encouraging gambling companies to set up shop in Ukraine by offering a streamlined taxation system.

The issue of taxation has become an ongoing one for Ukraine, with legislators failing to impose a new taxation regime due to larger issues, including the conflict with Russia. In July 2021, Ukrainian MPs voted to approve a taxation regime that saw online casinos taxed at 10% of Gross Gambling Revenue (GGR), with sports betting operators charged less at 5% of GGR.

However, this law was never approved and has since been gathering dust in the Ukrainian parliament, leaving the market subject to a taxation regime dating back to 2010.

Under the old law, taxes in Ukraine were paid as follows: gambling operators had to pay 18% GGR tax or 10% turnover tax on revenues received with the use of slot machines and a general 18% corporate income tax. Lottery operators must pay a 30% GGR tax and a general 18% corporate income tax.

Winnings were also subject to 18% personal income tax and 1.5% military tax, which had to be withheld by the gambling or lottery operator acting as a tax agent.

This was simplified in April 2022 to be just 2% of income due to Russia’s ongoing conflict with Ukraine. When that was implemented, eight firms took advantage of the simplification, including 1XBet, which already had its licence in Ukraine taken away.

1XBet had its licence taken away after an investigation revealed it had ongoing ties with Russia.

This change saw companies go from an average tax bill per week of UAH200,000 (£4,600) to UAH23,000 (£530), so the state has put in a new proposal to stop this loophole from continuing.

Under Yaroslav Zheleznyak, a member of the Tax Committee of the Parliament and a deputy from the political party Holos, initiative deputies drafted a new law which the specialised committee has already passed.

Ivan Kurochkin, a partner at 4H Agency, gave his views on what this potential reform could mean for the Ukrainian market.

“It is hard to predict the outcome right now as the draft law is yet to be made public. There is always an implementation part that can hinder the ideas that will make its way into the draft law. In any case, the whole reform’s ultimate goal is to make the Ukrainian market more appealing to operators and to increase the state revenue from the industry,” Kurochkin told EGR.

“On the concept level, though, some tendencies might encourage international operators to enter the market. For example, strengthening mechanisms aimed at combatting offshore gambling, updated taxation framework and a new approach to the gambling regulatory body – everything is aimed at the same goal: to help the market finally reach its full potential.”

“Moreover, it is also crucial to mention that along with the introduction of new concepts, the reform also aimed at resolving the issues that are still present in the market and were acting as a roadblock for a lot of companies that were weighing in the market entry before the war: absence of the full certification framework, placement of servers, taxation, monitoring etc,” he added.

Kurochkin also spoke about further adjustments that could be made to the proposals. He explained: “It is highly likely that if the reform starts, then it may include additional changes to the existing regulatory framework along the way.

“To add to that, it would also be fair to anticipate that during the implementation stage, the reform might see additional tweaks as the Ministry of Digital Transformation is always very keen to hear the feedback from the industry and key stakeholders,” he added.

Kurochkin also spoke about whether this change in the law will see a clampdown on unlicensed operators in Ukraine. “We strongly hope that more transparent and attractive regulations would encourage operators to obtain a licence but not to work via offshore websites. That means it is important to observe how good intentions would result in new regulatory provisions and follow their implementation in practice,” he commented.

Kurochkin also provided an update on the state of the gambling industry in Ukraine at the moment and how much has changed since the beginning of the conflict.

“At the beginning of the war, operators began to evacuate their staff and relocate their businesses. In parallel, almost every licensed operator was involved in humanitarian and volunteering activities; they supported the Armed Forces of Ukraine and participated in humanitarian initiatives,” Kurochkin said.

“Overall, it should be noted that at the moment, the government is exploring all possibilities of generating additional funds to the state budget, including reformation of the gambling market,” he added.