IIBOA SUBMISSION - Finance.gov.ie
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The document provides a thorough
examination of the betting tax system as it
currently operates. It outlines why it is
inequitable across the various betting
platforms and has been a major factor in the
closure of over 450 shops nationwide. It
includes a proposal to increase revenue to the
Exchequer in addition to helping to prevent
IIBOA SUBMISSION further closures.
Irish Independent Betting Offices
Betting Review Association
Contents
Executive Summary................................................................................................................................. 2
Irish Independent Betting Offices Association........................................................................................ 3
Irish Retail Betting Industry .................................................................................................................... 4
Current System of Taxation .................................................................................................................... 7
Inclusion of the Remote Sector........................................................................................................... 8
Appropriate Rate of Betting Tax ......................................................................................................... 8
Most Appropriate Taxation Model ..................................................................................................... 9
Impact of a move to tax the punter .................................................................................................. 10
Proposed System of Taxation ............................................................................................................... 12
1Executive Summary
• The majority of the 450 shop closures since 2008 were owned by small
independent bookmakers.
• It is the shops located in the small towns and rural areas that are most at risk.
• Each shop closure could cost the Exchequer up to €150,000.
• There is absolutely no case to link the betting tax receipts to the Horse and
Greyhound Fund.
• Any comparison with international rates of betting tax do not take into account
those factors which are unique to the Irish betting industry.
• A flat rate of 1% on turnover does not reflect a shop’s ability to pay.
• A progressive tax on turnover is the most equitable solution.
2Irish Independent Betting Offices Association
The Irish Independent Betting Offices Association (IIBOA) represent close on 100
small retail betting shops in Ireland. Our members are primarily family run business
ranging from 1 to 10 shops mainly located in rural areas not serviced by any of the
Big 3 (Paddy Power, Boylesports and Ladbrokes) bookmakers. Each shop has an
average turnover of approximately €1.6m and employs up to 5 full or part time
workers. It is our opinion that this sector has been totally ignored in the decision-
making process regarding betting tax and we welcome the opportunity to make a
submission to the Tax Strategy Group (TSG). In addition, we would greatly
appreciate a meeting with the TSG to discuss our submission and to comment on
the possible effect on our sector of any other submissions received by the TSG.
3Irish Retail Betting Industry
Past
In any review looking at betting tax it is very important to look at the nature of the
industry and the changes that the industry has undergone in the recent past.
In the period up to 2008, the betting industry underwent a period of sustained growth
with the number of betting shops peaking at approximately 1300. Betting with online
operators and betting exchanges also experienced rapid growth but as this sector
was unregulated and untaxed by the State, accurate figures regarding its size are
hard to obtain.
Present
Since 2008 approximately 450 betting shops have closed leaving a current total of
850. The proportion of betting shops which have closed since the recession is
unprecedented in the retail sector and has obviously been exacerbated by factors
other than the recession. When we look more closely at the figures some of the
reasons become more obvious.
A breakdown of the ownership of betting offices in 2008 and currently provides an
interesting starting point.
2008 2017
Paddy Power 191 261
Boylesports 146 231
Ladbrokes 208 141
Others 755 217
------- ------
Total 1300 850
4The Big 3 have increased ownership from 42% (545 shops) in 2008 to almost 75%
(633 shops) today, whereas independents have lost over 500 shops. Some of the
best-known names in the independent sector such as Celtic, Hacketts and
Cashmans have been forced to close their doors. The cost to the Exchequer of each
shop closure is highlighted in Appendix I.
When one scratches beneath the surface of the figures some of the reasons for the
excessive number of closures in the independent sector become obvious.
1) Effect of a flat 1% turnover tax
Because of its nature a turnover tax will have a disproportionate effect on those
businesses with a lower net margin. Like any business, betting shop expenses
comprise of fixed and variable costs. However, owing to the huge increase in media
rights payments and our VAT on inputs being non-recoverable, betting shops have
high fixed costs. Combined with economies of scale this means higher turnover
shops enjoy a significantly higher net margin than those with smaller turnovers.
The figures in Appendix II highlights the problem, as a flat 1% turnover tax equates
to a crippling 100% of net profit for a smaller shop compared to 59% for the average
Paddy Power shop. There can be no doubt that this unfair proportion of taxation to
net profit borne by the smaller operator has been a major factor in the demise of
many of our members.
2) Unfair competition from the untaxed remote sector
Until August 2015 all bets placed by Irish residents with online bookmakers and
bookmakers based outside the jurisdiction escaped Irish betting tax entirely. As a
result, online bookmakers with a retail presence provided incentives to their retail
clients to migrate to their online platform. Because of this tax advantage, online firms
could offer enhanced odds to customers which retail shops were unable to match.
Some firms who attempted to compete in the resulting price war endured an
unsustainable drop in their margins and inevitably closed. Others closed because of
the fall in turnover due to their customers being lured to their untaxed competitors.
5As well as the anomaly in the tax treatment of online bets, online operators with a
retail shop presence engaged in a concerted marketing campaign to encourage
punters to use a cash deposit and withdrawal facility at their shops in conjunction
with their online accounts. This resulted in a bizarre situation whereby a customer
lodged cash in a retail shop, walked home, placed bets online and then called to the
shop to collect the balance on their account. All bets placed escaped Irish betting tax
altogether and was a contributory factor in the closure of many shops who could not
make the same offer to their punters.
Future
The closure of 450 betting shops has had a serious impact on Exchequer revenue.
Each shop would have sustained up to 5 jobs as well as paying 1% betting tax on
top of normal business taxes. While most of these shop closures were not headline
making events, it was estimated by Goodbody Stockbrokers that the cumulative cost
to the Exchequer was more than €150,000 per shop as illustrated in Appendix I.
If unemployment benefit was claimed for an average period of 12 months, the cost of
the 450 shop closures to the Exchequer amounts to a staggering €70m in year 1 and
a recurring annual cost of €28m.
Most of these job losses were in smaller towns and rural areas where other
employment opportunities are scarce. A continuation of the existing tax regime will
result in further shop closures and add to the ever-growing unemployment
blackspots being experienced in rural Ireland.
6Current System of Taxation
The 1% tax on turnover yielded €50.7m for the Exchequer in 2016.There have been
many calls publicly for the betting industry to fund, in its entirety, the grant received
by the racing industry which amounted to €64m in 2017.Indeed Horse Racing Ireland
foresees this to happen by 2020.We strongly believe that there should be no link
between betting tax and the grant received by racing.
Firstly, Irish racing accounts for approximately 12-13% of betting shop turnover and
a lower percentage of remote turnover. This percentage has been declining steadily
yet the grant to racing has been increasing steadily in the last few years. It would
therefore be incongruous to have any link between the two.
Secondly the size of the Irish racing industry is totally out of keeping with our
population. Prize money levels in Ireland per head of population are three times
those of France and more than four times those of the UK. It goes against any logic
to suggest that bookmakers who derive their revenue from our relatively small
human population should fund a racing industry whose size is hugely
disproportionate to the size of the country.
Hypothecation is not a feature of the Irish tax system and there is no reason to
make an exception for Racing.
The IIBOA have identified several areas of concern that currently exist, both with the
current system of tax and the proposed changes that have been mooted. The
specific areas of concern which are discussed below include the following:
• Inclusion of the remote sector
• Existing model of turnover tax
• Appropriate level of betting tax
• Taxing the customer
7Inclusion of the Remote Sector
As has been mentioned earlier the remote sector were not liable for any tax on their
turnover until August 1st, 2015.This gave the sector a competitive advantage which
they exploited by encouraging customers to migrate to their online platform.
However, it is clear the tax on sports betting turnover does not go far enough. In
many instances, remote firms use the sports betting platform to entice punters to
open accounts with their firms. These can take the form of cash back offers or
enhanced odds which the retail shops cannot match. Once signed up for the website
punters often find severe restrictions on their ability to place bets on the Sportsbook
but no restrictions on casino games and poker usage. It is fascinating that neither the
casino games or the poker attract point of consumption turnover tax in the manner of
bets placed with the Sportsbook. This enables the remote sector to cross subsidise
their Sportsbook to give them an unfair competitive advantage over the retail sector.
The imposition of the 1% betting tax in August 2015 came too late for many shops in
the retail sector who suffered for many years with the unfair competition. However,
the TSG now can level the playing field fully by ensuring that all revenue streams of
the remote sector are taxed at an equivalent rate to that paid on Sportsbook bets.
Appropriate Rate of Betting Tax
By any metric, taxation should be fair and equitable and in proportion to your ability
to pay. With the loss of over 500 shops from the independent sector in less than 10
years the current 1% flat rate model is unfair on our shops because of our lower net
profit margin. Any increase in this rate will simply wipe out the independent sector
altogether.
Many of the calls for an increase in the 1% rate have come from those in the racing
industry such as HRI and the Alliance for Racing an umbrella group for trainers,
breeders, jockeys etc. It is normal for these groups to state that our 1% rate is low by
international standards and use this as the basis for their view to see an increase.
However, these calls show a surprising lack of knowledge of the Irish betting
industry.
Firstly, many of those international comparisons made are looking at countries which
do not have an off-course betting industry like ours. For example, France and Hong
8Kong have a Tote style system run by a monopoly which imposes very high
deductions from punters. It is this high deduction rate which enables the rate of tax to
be far greater than that levied here. In Ireland, the betting industry consists of a high
turnover, low-margin mix of traditional shops, remote bookmakers and betting
exchanges. Such comparisons are disingenuous to say the least.
The closest industry model to Ireland is that of the UK. While it has a Gross Profit
Tax (GPT) instead of a turnover tax its industry has a similar mix of outlets to
ourselves. The Indecon Report of 2012 equates their GPT to an 3% turnover tax on
UK horseracing bets and a 1.8% tax on other bets. This obviously is quite a bit
higher than our 1% rate. However, looking at the last published results for Paddy
Power’s UK shops the reason for their ability to pay this rate becomes clear.
Fixed Odds Betting Terminals (FOBTs) are gaming machines which are legal in the
UK shops but not here, make a massive contribution to the profits of UK outlets. On
average, each Paddy Power UK shop makes €355,131 annually from these
machines. This enables their UK retail arm to make a net margin of 2.61% even after
paying the much higher GPT rate. In contrast, their Irish retail net margin of 1.68%
which is significantly lower. If one were to apply the UK GPT rate, it is possible that
even Ireland’s largest bookmaker would not be in a break-even position. When one
considerers the average profit margin of a shop with a turnover of €1.6m is 1.0%
then it is obvious than any move to increase rates would sound the death knell of
smaller retail shops.
Any comparison with betting tax rates pertaining in other countries are totally
invidious as the betting industry models in those countries make it possible
for a higher rate to be levied.
Most Appropriate Taxation Model
The taxation models most commonly used in the gambling sector are either a
turnover tax or a GPT. By their nature both methods are unfair as they are levied on
the business irrespective of their profitability. In addition, when different sectors of
the same industry are operating at greatly different net profit margins then either a
turnover tax or a GPT can be so unfair as to be penal as illustrated earlier with the
91% turnover tax equating to 100% of net profit for retail shops with a turnover of
€1.6m.
The other taxation model which has been mooted is a change from taxing the
bookmaker to taxing the punter. Not only do we feel that this method would be
disastrous for the retail sector, but it would be virtually impossible for the Exchequer
to quantify their revenue from both betting tax and general taxation as illustrated in
Appendix I.
There are obvious flaws in any model used but we would marginally favour the
continuation of the turnover tax as it is easier to administer than the GPT and is also
an easier model to project future revenue streams.
With regards betting exchanges, it is vital that any tax rate applicable to traditional
betting obtains an equivalent level of revenue form betting exchanges.
Impact of a move to tax the punter
Since July 1st, 2006 any betting tax levied has been borne directly by the
bookmakers. Many of the current punting generation have never paid tax on either
their stake or their winnings. The imposition of such a tax would bring uncertainty for
bookmakers regarding the level of the fall in turnover. As a result, it would be difficult
for the Exchequer to quantify the amount such a tax would raise. Some of the factors
which would cause this uncertainty include the following:
➢ Churn
Many punters have a set amount they spend on betting If they have winning bets it is
common to recycle their winnings with further bets. Any tax on punters will reduce
the amount they can recycle and therefore reduce turnover. In trying to quantify the
size of any reduction in turnover a comparison between betting tax received by
Revenue in 2005 which was the last full year of a 2% tax on the punter and 2007
which was the first full year of tax free betting for the punter is very revealing. This
shows an increase in annual turnover from €2.29b in 2005 to €3.64bn in 2007.If
these turnover patterns were reversed after a new tax on punters in 2018 we could
expect a turnover drop of 37% which would be catastrophic for bookmakers.
10➢ Unlicensed Operators
Another area of grave concern would be illegal gambling both in cash outside the
betting shop environment and unscrupulous remote operators who might try to lure
bigger staking punters to an illegal tax-free environment. Any increase in illegal
gambling could see Ireland fall foul of stringent EU anti money laundering legislation.
It is inevitable that the imposition of a rate increase, to compensate the Exchequer
for loss of revenue, would increase illegal gambling.
➢ Disproportionate Effect on Retail Sector
Retail shops such as ours, are very vulnerable to any promotions the remote sector
can offer to circumvent the tax. We are specifically concerned about credits in lieu of
the tax which may be in the form of free spins at casino games or free credits at
poker. These offers would be impossible to police and would amount to unfair
competition on the retail shop sector.
We feel that there are many negatives and unknown factors about taxing the
punter directly. These factors will impact on both bookmakers and the
Exchequer and are serious enough for us to oppose any such punters tax
outright.
11Proposed System of Taxation
A flat rate of 1% on turnover places an unfair burden on the retail sector which
operate at lower net margins when compared to the remote and betting exchange
sectors, due to the higher fixed cost of operating from the high street. In Appendix III
it is noticeable from Paddy Power Betfair published accounts in 2015 that their online
sector recorded a net margin on their sportsbook stakes of 4.32% compared to a net
margin of 1.68% in their Irish retail operation. In addition to this, it is apparent within
the retail sector that shops with smaller turnover are expected to contribute a higher
portion of their profit compared to that of their more lucrative counterparts (Appendix
II).
In framing our proposal, the IIBOA propose a taxation model which is equitable to
each sector and is consistent with their ability to pay, while increasing the overall tax
take for the Exchequer. In addition, we feel that our proposal will not fall foul of any
State Aid concerns.
➢ Turnover Tax Proposal
For each retail registered premises, call centre and web domain we propose the
following rate of tax:
First €2m turnover at a rate of 0.5%
Next €2m turnover at a rate of 1.0%
All subsequent turnover at a rate of 1.5%
An appropriate rise in the rate paid by Betting Intermediaries.
12Based on 2016 Revenue figures this would have the following effect:
2016 New Proposal
€m €m
Retail Sector 28.1 19.6
Remote Sector 20.7 31.0
Betting Intermediary 1.9 2.8
-------- --------
Total 50.7 53.4
Under our proposal the overall tax take for the Exchequer increases by €2.7m
and aligns the tax rate far more closely to the ability to pay.
➢ State Aid Concerns
Having suffered for many years with the advantageous tax treatment received by our
remote competitors it would be ironic if our proposal were to fall foul of EU State Aid
concerns. We are confident that it will pass any inspection under the State Aid rules.
Firstly, our proposal gives all registered premises, call centres and web domains the
same treatment in terms of turnover at the lower tax rate. This progressive rate of tax
is in common with the Income Tax code and is fair to all.
Secondly our neighbours in the UK whose betting industry most closely resembles
our own recognise the severity of betting tax on the smaller operator. They have for
many years given an abatement on GPT based on the level of profitability of each
shop with smaller firms obtaining a reduction in the amount payable.
13Appendix I
Cost to the Exchequer per shop closure
This table provides an illustrative example of the cost to the Exchequer each time a
shop closes. It is based on a shop with a turnover of €1.6m.
Betting Tax @ 1% €16,000
PAYE/PRSI €27,326
VAT €13,000
Rates €4,000
Corporation Tax €2,000
Total Tax Contribution Lost €62,326
Unemployment Benefit €95,000
Total Cost to the Exchequer €157,326
14Appendix II
Retail Sector – Betting Tax as a % of Profit
IIBOA Paddy Power
Average LBO Average LBO
Turnover €1,600,000 €4,688,000
Betting Tax €16,000 €46,880
Operating Profit *€16,000 €78,750
Betting Tax as a proportion of profitability 100% 59.53%
* Based on a net margin of 1%.
15Appendix III
Extracts from Paddy Power Betfair Plc Accounts
Online Sector
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