Analysis on Online Casino Taxes by RUB
The beginning of a new year has brought German online gambling closer to legalization, with a July timeline in sight. One of the issues that have come to the forefront has been how to tax this growing market. Several federal states have put forward a proposal where 8% would be levied on bets placed on online gaming machines. However, this is being questioned by a study from Ruhr University Bochum (RUB).
Is the proposed tax model effective?
Since the end of last year, there's been a tax debate surrounding German online casinos. The financial ministries of North Rhine-Westphalia, Hesse, Bavaria, and Berlin have been leading the way and have proposed a draft that would impose a 5.3% tax on online poker and 8% tax on stakes for online slot machines. This would mean that each spin would incur an 8-cent tax for every euro staked.
The industry voiced its concerns, as it is common practice in other regulated EU markets to tax gambling on gross gaming revenue instead of stakes. This raises questions about the potential impact of these tax regulations on the business processes of reputable online casinos in Germany. It also begs the question of whether the tax laws are in line with the principles of the State Treaty on the Reorganization of Gambling (GlüNeuRStV).
Ruhr University Bochum has taken on the task of clarifying these issues. Its Institute for Gambling and Society at the Faculty of Law, led by Prof. Dr. Julian Krüper, has considered the compatibility of the proposed model with the guiding principles of the GlüNeuRStV and the possibility of effectively channeling gambling into the legal market. The results are thought-provoking.
Established in 2019, the RUB Institute for Gambling and Society aims to serve as a platform for dialogue between gambling practice, politics, administration, and academia. Prof. Dr. Julian Krüper, who focuses on constitutional theory, public law, and interdisciplinary legal research, is at the helm. In addition to RUB, Heinrich Heine University in Düsseldorf and the University of Wuppertal's Faculty of Social Sciences also participate in this project, focusing on gambling as a social phenomenon and exploring sensible legislative strategies.
The risk to successful channeling
The Institute's research reveals that the primary goal of the GlüNeuRStV (Section 1 sentence 1 no. 2) is to create a legal alternative to illegal gambling. By channeling gambling behaviors into structured and regulated paths, the government aims to curb the unregulated black market. In simple terms, the aim is to successfully steer gambling into the legal market.
This channeling is a crucial step towards employing all other measures, such as player, child, and youth protection, game manipulation prevention, and, most importantly, ensuring a legal and attractive gambling market. To achieve this goal, effective taxation of the gambling industry is necessary, taking into account various forms of gambling.
The dilemma of payout adjustments
The RUB analysis finds a significant issue arising from the proposed tax model. Instead of imposing a tax on gross gaming revenue (the difference between stakes and payouts), it imposes a tax on stakes (total bets wagered per game). This means providers will have to readjust their payout ratios (RTP or Return to Player) to avoid incurring losses.
Currently, reputable online casinos have a RTP around 96%, meaning players are expected to receive 96% of their stakes back with 4% going to the house. Under the proposed model, however, a provider's losses will exceed their revenue when the payout ratios are not rebalanced. The tax could be equivalent to a gross gaming revenue tax of 200%.
Owing to this tax burden, online casinos may find it challenging to remain competitive, leading them to reduce RTP to 88%, which would greatly reduce the attraction of legal offers. Furthermore, the imposition of the wagering tax would stand in stark contrast to the rules in other regulated EU countries where a tax is levied on gross gaming revenues. This could result in players shifting their gambling to these providers, undermining the new law's core objective - channeling gambling into the legal market.
Saxony-Anhalt's obstacles
Apart from the tax woes, the new gambling law is facing challenges in Saxony-Anhalt, where the new central gambling authority is slated to reside. The SPD parliamentary group in the region has raised concerns about the proposed betting limit of 1,000 euros per month. They believe that, with one of the lowest per capita incomes in Germany, the limit would be breached too quickly. They seek more time for renegotiations.
A recently approved gambling law now requires the consent of at least 13 out of the 16 state parliaments. However, due to Saxony-Anhalt's unique position, their vote is essential. If an agreement can't be reached, the whole regulatory process could fall apart in the final stages, which could take years. The future of this legislation is uncertain.
Read also:
Source: www.onlinecasinosdeutschland.com
