How to make a good tax system in Sports Betting
A Betting law sports is a reality in New Zealand. It is estimated that in 2020 it will be fully implemented in the country.
The regulation of this type of game, however, raises doubts. The issue raises several practical, legal and economic issues.
The New Zealand government has released a 1st draft of the decree that will regulate betting . Some of these doubts have been resolved, while others remain.
One of the main issues that still remains is related to the New Zealand licensing system .
It is currently unknown how the New Zealand licence to operate sports betting will be structured. And this causes apprehension!
Experts have debated the issue with emphasis on 3 points very important:
- Plumbing fee
- Tax rate
- Tax revenue
In this article, we give voice to this debate and explain how these points affect the construction of the New Zealand licensing system.
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Plumbing fee vs. tax fee
Before we understand the above concepts, we need to understand what a licensing system is.
It arises when a country decides regulating sports betting and other games of luck and Chance. From this a legislative and tax model is created.
This model needs to consider several points. One of them is a tax rate that the government will collect from betting operators .
These companies have to pay fees for obtaining the license in the country.
In addition, they owe the Government monthly taxes on the exploitation of the games.
These taxes can be levied on top of the total earnings of the bookmakers, including the prize pool, or just about your profits .
A third point to consider is the bettor.
In a licensing system, it is interesting for the government that 100% of national bettors bet on legalized sites in the country .
This is where the concept of plumbing fee .
What is the plumbing fee?
Channelization rate means the percentage of punters who bet on legalized sites in the country as opposed to those who bet on illegal ones.
So that you understand this well, let's take an example. Let's say that in New Zealand the following values have been bet:
- $ 500 million in legalized homes the New Zealand
- $ 50 million non-legal sites in New Zealand
Adding it all up, we have $ 550 million of total volume wagered by The New Zealanders.
If we divide 500 by 550, we would have a plumbing rate of 90%.
Therefore, 90% of New Zealand bettors would bet on legalized sites.
The higher this rate, the better!
This means that there was adherence of bettors to sites with a license to explore sports betting in national territory.
A study conducted by professionals at Copenhagen Economics pointed out that the only way to get a channeling 100% it is not charging fees from these operators.
This would minimize the costs of these companies, which allows them to offer a higher quality product.
At the same time it would make them more interested in acquiring a license.
Setting the rate at zero percent, however, poses problems for the government. The country's tax revenue would also go to zero .
If this occurs, it harms state funds. Something that makes it impossible to finance and make sports betting viable in the national territory.
How is the plumbing fee affected by taxes?
In order for the government to ensure the viability of a licensing system, the amount of taxes it should be exceeding zero .
The problem is that there needs to be a balance in rates. Too high taxes can hurt homes in the long run.
When this occurs, companies often choose not to participate in licensing. They remain outside the legal system.
Punters can remain “outside the law." Something that reduces the rate of plumbing.
The challenge for New Zealand today is to create a fair regulation for all involved, allowing:
- That the government has tax revenues - for this players must bet on sites with New Zealand license
- That the bookmakers ' businesses are financially viable and that they can offer a quality platform , retaining players in licensed houses.
Relationship between tax revenue and tax rate
The study conducted by the Swedes concluded that the ideal tax rate to have high channeling rate it is 15% .
Determining this percentage was possible after comparative research among several legalized international markets.
At first, it was concluded that any tax rate above 0% will negatively affect plumbing.
Still, examples of successful countries with high taxation on sports betting were found.
Example of United Kingdom , in 2016. At the time the British licensing system had a tax rate of 15%.
The plumbing rate that reached 95%!
At the same time, the study revealed that a tax rate under 15% it doesn't necessarily mean superior Plumbing.
You need to think about the percentage of tax rates. Aliquots are the values used to calculate what the value of a particular tax will be.
Therefore, the government needs to offer attractive rates to bookmakers, so as not to alienate them from the licensing system.
The study cited above points out that licenses with rates above 20% they tend to fail. This is due to the following factors:
- Rates above 20% Drive betting operators away
- Betting operators lure their customers with them out of the licensed system
- Even with high tax rates, legalized betting "consumption" is lower
- With a lower plumbing rate, there is less tax revenue for the state
If New Zealand offers a licence with a high tax burden to bookmakers , it is very likely that it does not have adhesion on your part.
Large companies would not be able to offer odds competitive . The small ones, on the other hand, would have a very difficult time remaining in operation.
We could have a massive return of punters to the non-legal market.
Other factors affect the rate of plumbing
Collecting fair tax rates from bookmakers is just one of the steps the government should take.
This would allow the companies reduce their operating costs . They could thus pay attention to other expenses that legalization imposes.
Operators always evaluate all the costs that they will have to bear. Only after this assessment can they determine whether it is worth having a license.
So in New Zealand, in addition to the tax burden, they would have to deal with:
- Limitations on marketing and advertising actions;
- Compliance system, aiming at structuring an integrity system related to its operations;
- The initial and monthly costs of purchasing the license.
Licensing models for inspiration
In 2016, about 14 European countries they had a licensed sports betting market. Among these, the most relevant to New Zealand are:
- United Kingdom
- Denmark
- Italy
- Spain
- France
- New Zealand
New Zealand and France , as you can see below, had the higher tax rate of all at the time, according to Copenhagen Economics:
| Countries | Tax rate | Plumbing fee |
| United Kingdom | 15% | 95% |
| Denmark | 20% | 88% |
| Italy | 20% | 80% |
| Spain | 25% | 70% |
| New Zealand | 41% | 52% |
| France | 45% | 52% |
From the information in the table above, we can come to some interesting conclusions.
The first confirms that the countries with the lowest taxation are those with higher plumbing rate .
The converse also proves true.
At the same time, note that the tax burden on bets is equal in Italy and Denmark. However, the plumbing it is larger in the Nordic country.
As a rule, you need to take into account the volume of bets placed .
High tax rates lead consumers to gamble less.
In the latter case, they give preference to operators outside the country. This does not generate a financial return to the state.
We must also take into account the number of inhabitants of a country.
The UK has a larger population than New Zealand, and therefore more gamblers.
The same study conducted by Copenhagen Economics interviewed 8 operators betting. All of them are licensed in the UK.
About half operate legally in Italy and Denmark, 2 in Spain and only 1 in France. None operate in New Zealand.
The interview revealed an interesting aspect.
All operators stated that they prefer licenses in which there is participation of large companies of the branch.
According to the interviewees, this animates the competition, as it leaves everyone on an equal footing in the country.
NOTE: learn what New Zealand can learn from legalization of gambling in New Zealand .
What Will The New Zealand licensing system look like?
The New Zealand government released the 1st draft of the decree the new gambling law. With this, we know some details about the country's licensing system:
- You will be paid one one-time fee of $ 3 million to obtain the license, which will be valid for 9 years renew
-
Licenses will be divided into
3 schemes
, who will have to pay monthly to continue operating:
- Physical Regime – $ 20 thousand monthly
- Online scheme – $ 30 thousand monthly
- Mixed Regime (physical and online) – $ 45k monthly
- Every company should have an mandatory reserve of $ 6 million .
- A tax rate of 5% a 7% about the gross revenue , taking away the prizes
The percentage of taxes is good. It is below what markets like Italy and the UK adopt.
Still, it can be improved so that there is a high plumbing rate in New Zealand. This is because the other proposals add costs to operators.
Things that may discourage some companies from operating legally in the country:
- The monthly payment
- Fee to obtain the license
- Mandatory reservation are expenses
It is also important to point out that the behavior of bettors must be taken into account in this process.
Many will not legally bet in the country if the website of your choice fails to obtain a license or fails to offer odds attractions .
Conclusion
The expectation among members of the Ministry of Economy regarding the legalization of sports betting in New Zealand is high.
It is believed that in up to 5 years the state is spending around $ 6 billion with tax collections. A high estimate, but real.
According to economic experts, the ratio of revenue to gross domestic product should rise from 0.2% to 0.5%% of GDP
But that growth will only be possible if New Zealand's licensing system is fair and balanced.
It is important for the Federal Government to make the country attractive to operators and gamblers.
There is a lot to learn from other markets.
The government has even commented that the United Kingdom and Italy are great inspirations.
Denmark and Sweden are also interesting markets. Especially the Swede, who became one of the pioneers in the fight against gambling addiction.
As we said initially, much of the information in this article was based on a study done in Stockholm, by Copenhagen Economics.
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