A Step Back for British Casino and Bingo Operators

British casino and bingo operators have been left bemused after the government announced plans to raise an estimated $89 million in extra revenues over the next year through a series of tax increases.
Contained in the most recent budget unveiled on April 22 by Chancellor of the Exchequer Alistair Darling, the rises could seriously harm businesses already struggling to cope with a recent reduction in the number of high-stakes jackpot machines alongside a public smoking ban and the global economic downturn.

From April 27, the rate of duty charged on games of bingo has increased from 15 percent to 22 percent, which is expected to seriously complicate matters for an industry that has seen more than 16 percent of its venues shut over the last six years.

Before the rise, an average linked game of bingo costing $10 with competitors vying for the same prize pot would see most British venues charge between $1.48 and $2.22 as an operating fee with the remaining amount going toward the players’ jackpot. This fee was then subject to a 15 percent tax, but the new budget increases this rise to 22 percent, which could see the government pocket an extra $52 million over the coming year.

The government initially claimed that the new budget would help bingo because it also abolished the practice of “double taxation,” which saw operators charged a value-added tax (VAT) of 17.5 percent before they then paid the 15 percent duty. This move sees the Exchequer lose around $74 million in revenues over the next 12 months and has been hailed by the government as a stimulus for the industry.

However, many operators claim the government has offered them something in doing away with VAT that wasn’t theirs to give. This is due to a ruling by the nation’s VAT and Duties Tribunal in May in favor of Rank Group, the nation’s second largest operator of bingo halls and casinos. Rank had filed a claim with Her Majesty’s Revenue and Customs in 2006 for repayment of $53.53 million it paid in VAT, and the tribunal ruled in its favor, stating that “double taxation” contravened European Union laws on fiscal neutrality.

This saw Rank cease paying VAT for around two-thirds of its bingo games, known as “interval bingo,” with numerous industry analysts quietly suggesting that April’s abolition of “double taxation” was down to the government recognizing that it had lost the case. They intimated that the chancellor had taken a pre-emptive step before other operators had the chance to queue up with claims of their own.

“I do not understand what the British bingo industry has done to justify the government’s vindictiveness,” said Ian Burke, CEO for Rank.

Similar to bingo, player-to-player card games such as poker have also been hurt by the tax man, as these are now subject to a casino gaming duty that could see most casinos pay more than triple what they did in the past. Before this budget, the government charged VAT at 15 percent on all revenues that casinos received for charging rake or card room participating fees. The chancellor has now ended this practice and brought games such as poker into the same category as roulette and punto banco.

This duty is charged on a sliding scale based on the revenues earned for each individual site over a six-month period. So the first $2.82 million earned by a casino is charged at a rate of 15 percent while the next $1.93 million is levied to the tune of 20 percent. This system carries on with the next $3.42 million taxed at 30 percent while the subsequent $7.43 million is subject to a 40 percent duty. That rate continues until $15.61 million, at which point anything in excess is subject to a 50 percent tax.

While the government declared that this is a fairer way of charging tax, some U.K. casinos have stated that they make the majority of revenues from games such as poker in their more popular casinos. This means these have gone from being taxed at 15 percent to 50 percent.

In addition, the fact that casinos are not being charged VAT means they are no longer able to claim these monies back from the government. In the U.K., if a company is being charged VAT for buying in a service, subject to certain rules, it is allowed to recover these funds to stop the consumer footing the bill.

“The changes in tax structure are worrying for safe, socially responsible casino operators,” said Peter Brooks, executive deputy chairman for the U.K.’s largest casino operator, Genting UK PLC. “On the one hand, the government has encouraged investment in research and regeneration. On the other hand, the tax system is damaging.”

Many in the industry are predicting that this measure will see some U.K. casinos cease offering games such as poker in order to reduce their tax bill, which could force players either into underground and unlicensed premises or onto the Internet.

“The Rank Group notes with dismay the increases to bingo duty and poker taxation announced in Her Majesty’s Government Budget statement,” a statement, released by Rank, read after the budget was revealed. “This change has been imposed without prior indication or consultation. In Rank’s recent meetings with Her Majesty’s Treasury, there had been no discussion of increases to taxation for bingo or poker. Rank anticipates that the changes to taxation … will result in approximately $8.92 million of unbudgeted costs during the financial year to Dec. 31, 2009, or approximately $13.39 million on an annualised basis.”

Finally, the government has also raised the amount of tax paid on amusement machines by approximately 9 percent under the Amusement Machine Licensing Duty (AMLD), which could see the chancellor rake in another $13 million over the next year.

The amount of AMLD charged on an amusement machine depends on its stake and jackpot. There are six categories ranging from Category C machines that have a stake of 7 cents to the high-end Category B1 units that cost $3 to play but may pay out $5,954. So, if an operator wants to license a Category C machine for 12 months, they must now pay $1,235 whereas last year it would have cost them $1,116. For a Category B1 machine, it now costs $4,185 to obtain a 12-month license instead of last year’s $3,836.

Bingo club and casino operators have quietly intimated that the rise in AMLD will not only hurt their industries but also negatively impact the machine developers and manufacturers as fewer units get sold. Some operators had argued for a rise in AMLD only at inflationary rates or lower but were greeted with an increase that is three times higher.

“Although we welcome the abolition of double taxation in bingo, we are disappointed with the rise in AMLD rates and the increase in gross profits tax to 22 percent,” said Sarah Mercer, gaming division public relations manager for Gala Coral Group, the U.K.’s largest operator of bingo halls and third in terms of casinos.

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