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South Australian Taxation Review
April 2015
Australian Wagering Council
A: Level 12, 95 Pitt Street Sydney NSW 2000
P: +61 2 8079 5204 E: [email protected]
www.australianwageringcouncil.com
South Australian Taxation Review 2015 – AWC Submission
INTRODUCTION
The Australian Wagering Council (AWC) welcomes the opportunity to comment on the South Australian
Tax Review Discussion Paper.
AWC members are Australian-based licensed online wagering providers who operate in a highly
regulated Australian market and a highly competitive global online environment. AWC members are
legal commercial businesses that employ thousands of Australians and contribute millions to
governments by way of taxes and license fees and to racing and sport annually in terms of product fees,
race field fees and sponsorships.
The introduction of online wagering has brought increased competition into the gambling market with
licensed Australian providers being at the forefront of innovative technology and promotions. This, in
turn, has had a flow-on effect for sport and racing in terms of marketing and additional revenue, which
would not otherwise be available if wagering organisations, could not viably afford to promote sport and
racing.
Taxation on online wagering must be treated differently to other forms of gambling consumption as the
online gambler is only a click away from accessing illegal black market offshore operators in search of
better value and higher odds. Australian online wagering providers must be able to continue to viably
offer online wagering services to South Australian residents if they are to remain competitive against
these unlicensed illegal offshore operators
The introduction of additional taxes on the highly regulated industry will have the result of pushing South
Australian consumers to the black market resulting in lower revenue for governments and a reduced
ability to provide responsible gambling and consumer protection safeguards to protect consumers and
to protect the integrity of Australian sport and racing.
The business models of online wagering providers have been developed to provide maximum value for
consumers with low margins returning back to wagering providers. Therefore any proposal to introduce
a ‘Point of Consumption’ (PoC) tax in South Australia will significantly impact the viability of Australian
licensed online wagering providers to operate in the South Australian market.
Further research into the unintended consequences of increasing the tax burden on licensed online
wagering providers must be undertaken and the experience of overseas jurisdictions examined before
any such proposal is further explored.
The key points of the AWC’s submission are outlined in the Executive Summary.
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South Australian Taxation Review 2015 – AWC Submission
EXECUTIVE SUMMARY
1. Online wagering should be treated no differently to other e-commerce activity, such as online
retailing of books, clothing and electronic goods, which have seen very high levels of online
growth. On the other hand, online wagering must be regarded differently to other non-internet
forms of gambling consumption.
2. A migration of South Australian customers to illegal, black market offshore operators could be
expected with the imposition of a ‘Point of Consumption’ (PoC) tax.
3. The PoC taxation model, as introduced recently into the United Kingdom, is not an appropriate
model to apply in Australia. UK research found that the introduction of a PoC tax was not
expected to achieve its stated goals. Other issues to be considered are as follows:
a. A PoC tax would significantly impact the viability of Australian licensed online
wagering operators especially small boutique operators.
b. A PoC tax represents a significant threat to the integrity of sport and racing and to
protecting South Australian residents in terms of consumer protection.
c.
A PoC tax would be a poor outcome for South Australian residents.
d. A PoC tax would limit the ability of racing and sporting bodies to earn a return from
wagering operators through product fees and sponsorships.
e. A PoC tax would shift the tax take from Federal Government to State Government.
4. Only gambling operators that earn economic rent due to government intervention should pay
PoC gambling taxes to government.
5. There is no need to create tax neutrality between monopoly retail wagering operators and
other operators.
6. Increasing the tax burden on licensed online wagering providers is unlikely to be an effective
way of reducing problem gambling. However, the responsible gambling measures provided by
online wagering providers effectively target those who are vulnerable or in need of assistance
more so than cash-based retail betting and venue-based gambling.
7. Evidence-based research should be undertaken to determine the impact of any proposed
additional taxation regime.
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South Australian Taxation Review 2015 – AWC Submission
KEY POINTS
1. Online wagering is another form of e-commerce and as such should be treated no differently
to other online retail activity, such as online retailing of books, clothing and electronic
goods, which have seen very high levels of online growth. However, online wagering should
be treated differently to other forms of gambling consumption when it comes to taxation and
regulation.
Purchasing wagering online is no different to purchasing any other consumer product online. The AWC
is unaware of any other online retailer which is subject to a PoC tax and as such online wagering should
not be treated any differently.
A proliferation of technologies has allowed greater access to wagering operators as has been the case
with all e-commerce providers. The Telsyte Australian Smartphone Study (2011) showed that Australia
had the second highest smartphone population penetration after Singapore. It was predicted that
smartphone population penetration would increase from 39% in 2011 to 77% by 2015.
However, online wagering differs from other forms of consumption and economic activity as the online
gambler is only a mouse click away from an unlicensed illegal offshore operator. These operators
supply Australian customers from outside Australia but pay no taxes.
Imposing a PoC tax will potentially give these unregulated operators a competitive advantage over
licensed operators and the tax base will unintentionally be reduced severely limiting the government’s
ability to gain the expected tax revenue increase and effectively move any taxation beyond the effective
reach of any State Government.
Setting too high a tax rate may have the unintended consequence of leading to a permanent loss of
revenue for governments as once Australian residents access offshore providers, it is often difficult to
reverse this migration back to Australian licensed online providers.
2. A migration of South Australian customers to offshore operators could be expected with the
imposition of a Point of Consumption (PoC) tax.
Leading gambling researcher Sally Gainsbury recognised this propensity for customers to migrate
offshore stating that ‘the taxation model implemented in relation to internet gambling must be carefully
considered by regulators to ensure that onshore gambling sites can be competitive with the offshore
market and still contribute appropriate levels of funds to government, the community and appropriate
sports and racing bodies’.1
The Interactive Gambling Act 2001 (the IGA) prohibits the provision of online gambling services to
customers in Australia but does not outlaw Australians from accessing online gambling services.
As such, there is little the South Australian Government could do to prevent South Australian
consumers from migrating to non-compliant, tax-avoiding offshore operators in search of better returns.
The imposition of this additional tax could create perverse incentives for the creation of a larger illicit
market of unscrupulous operators targeting South Australian consumers.
Due to the high price sensitivity of many online wagering customers, brand awareness will not protect a
large proportion of South Australian customers of licensed online wagering providers from switching to
1 Sally Gainsbury, 2012, Internet Gambling: Current Research Findings and Implication, Springer, page 37
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South Australian Taxation Review 2015 – AWC Submission
duty-avoiding offshore competitors or less reputable operators in less well regulated jurisdictions outside
of Australia.
Revenue that would otherwise be returned to the government and to the Australian racing and sports
controlling bodies will instead be going to offshore unlicensed operators.
3. The United Kingdom’s (UK) PoC taxation model is not an appropriate model to apply in
Australia. Research found that the introduction of a PoC tax in the United Kingdom is not
expected to achieve its stated goals.
Wagering operators in the UK do not pay VAT or product fees.
Australian-based online bookmakers pay over 22% of their revenue in GST and in product fees to
racing and sports controlling bodies.
Australian licensed wagering providers must have product fee and integrity agreements in place with the
major Australian racing and sporting bodies. Under these agreements, they are required to pay a
product fee to the relevant body and comply with integrity related obligations.
Under the recently introduced UK Government gambling tax reforms online gambling is now taxed on a
'point of consumption' basis. This is possible as the UK is just one licensing jurisdiction whereas
Australia has eight states and territory jurisdictions who regulate wagering together with the IGA which
provides for overarching Commonwealth oversight in relation to interactive gambling while allowing the
individual states and territories to retain some independent control.
The enforcement capacity to prevent the operation of unlicensed online operators has not been tested
in Australia despite the IGA legislation in this regard.
From 1 December 2014, any bets made with a bookmaker, or on a betting exchange, by a person in the
UK, were to be subject to a 15% tax on the gross gambling profits, irrespective of where in the world the
online operator is located.
KPMG undertook an economic analysis on behalf of the Remote Gambling Association (RGA)2. The
main findings of the report concluded that a 15% PoC tax on online gambling gross profits will fail to
achieve the UK government’s stated goals of:
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protecting UK consumers;
levelling the playing field for existing UK based operators; and
increasing public revenues.
KPMG suggested that many online gambling businesses will simply pass on increases in operating
costs to the consumer who will, in turn, migrate to unlicensed operators who are able to offer better
value for money. Some industry participants have also argued that revenue generation rather than
consumer protection underpins the UK government proposals.3
In addition to the above the AWC maintains that:
! A PoC tax would significantly impact the viability of Australian licensed online wagering
operators, especially small boutique operators.
2 KPMG, An Economic Review of the Proposed Change in the UK legislation for Online Gambling Taxation, 2013,
http://www.kpmg.com/IM/en/IssuesAndInsights/ArticlesPublications/Documents/RGA-UK-Summary-Report.pdf, Accessed 08.04.15
3 Banks, James, 2013 The Conversation 28.10.13, http://theconversation.com/all-bets-could-be-off-for-online-gamblers-in-the-uk-19314,
Accessed 08.04.15
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South Australian Taxation Review 2015 – AWC Submission
AWC members are high-volume, low margin operators and, as such, it is highly likely that providers will
be unable to absorb the additional burden of a PoC tax.
To maintain sustainable operating margins, the additional costs presented by this tax will most likely be
met by licensed online wagering providers:
− reviewing and reducing spend in discretionary areas such as marketing investments and
sponsorships as a consequence of adjusting to the proposed PoC tax reality;
− passing on the operating cost to South Australian consumers in the form of higher prices
(worse odds). Given the price sensitivity of many customers, especially VIP and professional
punters, this will result in a large number of customers switching to offshore black market taxavoiding operators who are able to continue to offer lower priced and more attractive products
Those licensed wagering providers that cannot afford to pay the additional tax will either shrink or fold
reducing the wagering supply of licensed and regulated products to South Australian.
This reduction in supply will push heavier on smaller boutique companies than their larger counterparts.
Larger businesses will be able to count on economies of scale to reduce costs while smaller boutique
companies will have no option other than to focus on their differentiating abilities.
This poses a serious risk for the viability of the regulated market and it could be expected that the
financial pressure put on Australian-licensed providers may produce a wave of consolidation as the
margins of smaller boutique providers evaporate.
! A PoC tax represents a significant threat to the integrity of sport and racing and to the
protection of South Australian residents in terms of consumer protection.
Nearly $400m of online wagering losses by Australians already flow to illegal offshore black market
bookmakers.
There are approximately 30 to 35 online gambling operators regulated by various states and territories
in Australia but an estimated 2,233 offshore gambling sites provide services to Australians in
contravention of Australian laws.4
At least one-third of interactive gamblers in Australia are not concerned about gambling with offshore
providers 5 exposing them to unscrupulous and sub-standard consumer protection practices and
increasing the risks to the integrity of sport and racing.
The International Centre for Sports Security estimates that 80% of global sports betting is illegally
transacted, making it invisible to regulators and investigators.6 Offshore operators are not regulated to
Australian standards nor required to report suspicious betting activity, therefore, there are significant
threats posed to sport and racing integrity as well as money laundering and other criminal activity.
A PoC tax would further limit the ability of domestic licensed bookmakers to compete with offshore
operators and would exacerbate the current situation with more consumers switching to illegal operators
with no guarantee as to whether there is any undesirable criminal elements involved in these offshore
gambling sites.
There are numerous examples in Europe where high taxes are driving the industry offshore.
Sally Gainsbury, 2012, Internet Gambling: Current Research Findings and Implication, Springer, page 37Discussion Paper No 3, 2014, page
Gambling Research Australia, Interactive Gambling, March 2014, Page xiv
6 University Paris 1 Panthéon-Sorbonne and the International Centre for Sport Security (ICSS), Protecting the Integrity of Sport Competition The Last Bet for Modern Sport, Page 12
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South Australian Taxation Review 2015 – AWC Submission
Sally Gainsbury recently referenced an article in Malta Today that identified that ‘UK gambling reforms
may aim to create equal tax for land & online gambling, but online operators are fleeing.’7
! The introduction of a PoC tax would be a poor outcome for South Australia.
Any overly burdensome tax regime which restricts the overall availability of legal online wagering has
the potential to reduce the welfare of recreational gamblers, as well as negatively affecting the viability
of licensed online wagering providers and the state government revenue base.
South Australian residents would likely pay more for wagering services than the rest of Australia or have
less betting types and opportunities offered by licensed wagering providers if their operating margins
cannot be maintained.
Any proposals to increase gambling taxes are also likely to harm consumers, including those on low
incomes.
! The introduction of a PoC tax would limit the ability of licensed providers to viably support
sport and racing in South Australia.
The introduction of online wagering has brought increased competition into the gambling market with
licensed Australian providers being at the forefront of innovative technology.
The introduction of a PoC tax would increase overall costs for wagering operators and reduce their
capacity to invest in marketing their services to ensure wagering can continue to compete with other
leisure pursuits.
This, in turn, has a flow-on effect for sport and racing in terms of marketing and additional revenue
which would not otherwise be available if wagering organisations could not viably afford to promote
sport and racing.
! A PoC tax would shift the tax take from Federal Government to State Government
It is estimated that 30 cents in every dollar earned under a South Australian PoC tax would shift from
the federal government through reduced income tax take.
4. Only gambling operators that earn economic rent due to government intervention should
pay PoC gambling taxes to government.
Monopoly retail wagering operators pay wagering taxes because they enter into monopoly
arrangements with state and territory governments that provide competition-free income.
Over 50% of wagering revenue in Australia is earned via retail outlets and is completely competition–
free.
Licensed online bookmakers operate in a highly competitive market where there is no opportunity to
earn economic rent.
7
Broeckmann, Anke, expensive UK gambling act debacle, Malta Today 9 October 2014,
http://www.maltatoday.com.mt/business/business_comment/44698/an_expensive_uk_gambling_act_debacle#.VSSivnp22JW, accessed
08.04.15
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South Australian Taxation Review 2015 – AWC Submission
At a consolidated level AWC members would be loss-making operations should a PoC tax be
introduced.
5. There is no need to create tax neutrality between monopoly retail wagering operators and
other operators.
Retail operators are taxed because they enjoy monopoly rights and benefits. Local track and online
bookmakers do not have that advantage.
Any difference in fees paid by traditional wagering operators and licensed online wagering providers is a
result of the fee paid by retail monopolies to retain their monopoly rights to the land-based bricks and
mortar retail business.
Online wagering providers are prevented from offering in these land-based bricks and mortar retail
markets under this exclusive monopolistic regime.
Licensed online wagering providers are already taxed equivalently to traditional retail operators and
make a substantial contribution to government by way of:
− Company Tax;
− Goods and Services Tax (GST); and
− Fringe Benefits Tax (FBT).
Unlike the monopolistic land-based bricks and mortar retail businesses, online wagering providers also
pay
− Betting taxes levied on a point-of-supply basis by way of license fees to the state/territory
regulators where the companies are licensed; and
− Product and race field fees direct to the sports and race controlling authorities.
6. Increasing the tax burden on licensed online wagering providers is unlikely to be an
effective way of reducing problem gambling. However, the responsible gambling measures
provided by online wagering providers effectively target those who are vulnerable or in need
of assistance.
The imposition of a PoC tax is unlikely to be an effective way of mitigating problem gambling as it will
only impact the legally licensed Australian-based wagering providers giving a clear advantage to
unlicensed operators who are not required to abide by Australian standards of responsible gambling.
If an online wagering service or product becomes unviable in Australia due to additional taxation
burdens, the greater the likely migration of South Australian residents to unlicensed operators in search
of competitive prices and available betting markets, and the less the Australian-licensed online wagering
providers and the South Australian government will know, or be able to do, about problem gamblers.
Wagering with reputable regulated online Australian-licensed wagering organisations provide significant
benefits to South Australian consumers in terms of responsible gambling strategies - more so than
cash-based retail betting and venue-based gambling.
As part of the AWC responsible gambling strategy, AWC members provide a suite of consumer
protection and harm minimisation measures to assist customers to make informed and responsible
decisions about their recreational choices.
These responsible gambling measures are readily accessible 24 hours per day and 7 days per week
and effectively target those who are vulnerable or in need of assistance without unduly impacting on the
legitimate enjoyment of recreational punters who experience no problems.
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South Australian Taxation Review 2015 – AWC Submission
These responsible gambling measures aim to:
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Protect vulnerable customers including the provision of:
o Activity Statements - the nature of account-based online wagering allows a
customer to readily access information about their wagering spend via an activity
statement which can be accessed electronically at any time. This enables
customers to review betting activity and history, and to track spending 24/7. Activity
statements also perform a useful budgetary function in enhancing a customer’s
awareness of the nature and scale of their wagering activity.
o Voluntary pre-commitment facilities - Voluntary pre-commitment encourages
responsible gambling by ensuring customers spend within their means up to a
maximum amount which they have predetermined is appropriate for them. Voluntary
pre-commitment facilities are available to customers online at the time of opening an
account and available throughout the life of the account, by contacting trained
customer relations staff and via AWC members’ websites. Online voluntary precommitment facilities are significantly more effective than those that can be offered by
land-based cash operators as only account-based online wagering providers have the
ability to verify the identify of customers and to enforce any established precommitment limit.
o Deposit financial limits - Any deposits that are made by customers that cause the
nominated limit to be exceeded for the nominated period (eg a day, week or month)
are not permitted. Should a customer choose to decrease their pre-committed
deposit limit that reduction becomes effective immediately.
o Self-exclusion - each AWC member provides self-exclusion facilities and the AWC
supports the development of a national ‘multi-operator’ self-exclusion database.
o Customer service staff training in problem gambling awareness.
o Problem gambling awareness tools & services – each AWC member provides access
to problem gambling awareness tools, support services and responsible gambling
messages, online and telephone self-help and the contact details for counselling
services are available on their websites. The provision of these tools ensures
customers can readily access information at any time in order to assess their own
circumstances and minimise any risk of gambling beyond their means.
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Prevent underage gambling with rigorous age identification and verification tools in line with
Australia’s Anti-Money Laundering (AML) legislation and by encouraging the use of filtering
programs.
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Combat criminal and fraudulent behaviour as the transparency of the account-based model
avoids many of the risks associated with anonymous cash-based and offshore wagering. It
provides significant advantages in controlling and detecting attempts to corrupt the outcome of
sport, launder money or to engage in deceptive conduct. Technology and systems have been
developed which identifies suspicious betting transactions and patterns which might pose a
threat to the integrity of racing and sporting events with reporting protocols to the relevant
authorities and sporting bodies. The advantage of account-based betting means that every bet
placed is tagged to a specific customer. Technology enables tracking of a customer’s name,
address, location, IP address and payment method to inhibit possible fraud and money
laundering. The source of funds and the destination of funds can be identified. A customer’s
betting history is readily available and can be used to identify any potential problem gambling
issues and any unusual or suspicious betting activity.
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Protect customer privacy and safeguarding information by ensuring procedures are in
place to ensure privacy of personal customer information and the safeguarding of financial
account information.
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South Australian Taxation Review 2015 – AWC Submission
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Promote fair wagering by ensuring proper procedures are in place to ensure that wagering is
fair and to identify any suspicious sports betting patterns and transactions which may pose a
threat to the integrity of sporting competitions
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Promote responsible marketing with all advertising and promotional activities undertaken in
a socially responsible manner, complying with all federal, state and territory regulations and
industry codes, and in line with community expectations.
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Promote problem gambling awareness by ensuring information on self-help and support
services together with responsible gambling messaging is provided on websites and other
mediums including links to the national gambling helpline and gambling counselling
organisations. Dedicated links to AWC members’ responsible gambling policies and practices
are also available on their respective website. In addition to these online measures, the rich
and immediate source of information provided by account-based wagering means online
customers are in constant contact with a medium that can deliver instant access to a wide
variety of problem gambling information, tools and assistance - more easily and effectively than
most forms of venue-based gambling. The anonymity of the internet may actually encourage
people to source help, such as online counseling, should they feel intimidated or stigmatised
by face-to-face encounters and allows for the use of software-based help systems and
dynamic self-help approaches to resolving problems.8
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Provide customer support and satisfaction by providing customers with an enjoyable
wagering experience with access to support and complaint resolution.
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Provide a secure, safe and reliable operating environment through the provision of internal
systems of compliance, good governance and business continuity.
7. Evidence-based research should be undertaken to determine the effectiveness of any
additional taxation regime
Evidence-based research should be undertaken in a comprehensive and robust manner to identify the
impacts and effectiveness of any potential additional taxation regime, notably:
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the unintended consequences of increasing the tax burden on licensed online wagering
providers;
the economic impact of any potential tax reform options;
the price sensitivity of demand for online wagering (including across product types and
different customer groups);
the licensed online wagering industry’s ability to absorb additional taxes;
the customer’s willingness and ability to switch to offshore, tax-avoiding, operators;
the basis on which any additional tax on online wagering providers is proposed and the rate of
any such tax - ie on gross revenue (tax on stakes less prizes or gross money wagered after
payouts but before expenses), turnover (tax on stakes or gross money wagered before payout
(ie tax revenues = tax rates x stakes) or gross profits (tax on gross wagering revenue less
other operating costs);
the experience of overseas jurisdictions in meeting their stated objectives; and
any wider possible effects of a PoC tax including the effects on sport and racing, employment,
innovation and other spill-over benefits to other sectors (e.g. advertising and marketing
sector).
Productivity Commission (2010), Inquiry Report Gambling, para 15.27
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