Irish gambling tax rises set to backfire?

The Irish Bookmakers Association has released a new report claiming that the Irish government stands to lose €35m in funds due to job cuts if it stands by its proposals to double gambling tax to 2%.

The study, carried out by Dublin City University Business School Professor Anthony Foley, assesses the impact of increases to the current taxation regime, saying: “It is likely that a substantial number of shops will be unviable if taxation on turnover is increased…. causing substantial job losses and consequent costs in unemployment payments and lost revenue to the exchequer.”

In the wake of the announcement, the IBA estimated that as many as 400 of the 850 betting shops in Ireland could close, with the loss of 2,400 jobs.

But in the light of this report and its prognostications of doom, should Ireland’s politicians stop the ship before it sails? Alan Heuston, partner and head of the Betting & Gaming Group at Irish law firm McCann Fitzgerald looks at the numbers.

A poisoned chalice?

When announcing the increase in Betting Tax on Budget Day it was estimated that the increase in tax from 1% to 2% would yield an additional €50m to the exchequer. This estimate was to be incremental to the €52m in betting tax receipts which were collected in 2017.

Unfortunately, no break out was provided as to how the increased betting yield was calculated and whether it factored in any negative impacts that the increase might have on the industry (e.g. shop closures/job losses). It would appear that as the estimate is broadly double the betting receipts of 2017 that the incremental receipts did not factor in any potential for contraction in the industry as a result of the measure.

As I outlined at the time of the Budget, the increase in the betting tax rates will be particularly damaging to the retail sector in Ireland, particularly for small to medium operators. Retail betting operators constitute the largest share of the betting market in Ireland, with €28m of the total betting duty yield of €50.7m in 2016 coming from the retail sector.

The number of licensed retail premises has fallen significantly in Ireland since 2008 (1,365 in 2008 to 856 in May 2017) largely because of increased competition from online operators in the market and because of the increasing cost base which retail operators must cover.

With rising labour costs and an increase in the costs of commercial property in Ireland, it is conceivable that the increase in tax rates will make many operators unsustainable, resulting in closures and a subsequent loss of jobs and tax to the exchequer. Therefore, the mooted increase in exchequer funding of €50m may very well be a lot less because of these changes and therefore the reported findings of the IBA report should not come as a surprise.

Will the Government reverse its decision?

There has been no indication that the government is considering reversing the tax increases announced in Budget 2019. It should be noted that in 2006 the government did reverse a previous decision to increase gambling taxes after the effects of it became apparent on the industry. However, our sense is that the changes announced in this year’s budget will become effective on 1 January 2019, as planned.

In this regard it should also be noted that the draft changes which are required to introduce the changes have been included in the draft Finance Bill which is due to come into force in early December.

In our view, rather than raising the rate of tax in the Budget it might have been better to review the rates of tax which apply to betting as part of an overhaul of the current outdated regulatory regime which exists in Ireland for betting and gaming.

Any changes that are introduced need to strike an appropriate balance between encouraging commercial and responsible gambling operators and protecting consumer and vulnerable gamblers. Simply increasing the rate ignores the major issue which exists in Ireland in that the current regulatory regime in Ireland is hopelessly outdated and in need of reform.