independent

Thursday 17 April 2014

Bet tax to generate new set of challenges

The new betting tax legislation is finally expected to be brought forward in the first quarter of this year.

There has been some criticism of the hold-up, given that the government published the Bill to amend Ireland's current betting tax regime last July. Over Christmas, Agriculture Minister Simon Coveney defended the delay, stating that it was essential that the legislation is properly drafted.

The one per cent tax which applies to betting shops will be extended to take all bets placed in Ireland – including on the telephone and online – into the tax net for the first time while betting exchanges such as Betfair will be subject to a 15 per cent tax on gross profit (GPT).

Revenue from betting tax has been declining steadily and some projections have put a value on these new measures of an additional €20m to the Exchequer, which is possibly overstated. It may be that €13m-€15m is closer to the mark, but it will certainly have a positive impact.

Sadly, the cost of years of delays in overhauling what everyone knew to be a totally out-of-date regime can be measured in very cold terms. In 2012, the State collected €27m in betting tax, a significant fall from, say, 2001 when almost €70m was taken in, albeit from a tax rate of five per cent. This rate was subsequently reduced to two per cent, then one per cent but the fact that the non-traditional betting platforms have remained outside the tax net for so long has cost the State a huge amount of money.

The Horse and Greyhound Racing Fund – split 80/20 between the two industries – was €56.3m last year. This was down a whopping €20m on 2008, but the Government still had to prop up the fund by almost €30m. In the last 10 years, the shortfall in the fund made up by the Exchequer has been €265m and there is a view within government that more needs to be done within the horse racing industry to find new sources of funding. The Fund will get €55m this year, of which €44m goes to horse racing and €11m to greyhound racing and, going by last year's figures, almost €30m will again be needed to make up the shortfall.

Naturally, the move to finally raise more revenue through a new betting tax was widely welcomed, and there were few dissenting voices within the bookmaking industry. If there is any bone of contention it is from some traditional bookmakers, who say that the new legislation creates a 'two-tiered' tax system because some are taxed on turnover, others on gross profits. This anomaly was also highlighted in the Indecon review of the horse racing industry last year. There is, however, ready acceptance on all sides that something had to be done and realistically there is still time to iron out any flaws.

But there may yet be a sting in the tail. It had always been assumed that additional revenue from the new tax will be ring-fenced for the racing industry, but it appears this is not guaranteed. Other sports bodies argue that the evolution of betting over the last decade – which has included significant migration away from gambling on horses and greyhounds – means that the money raised should be spread around.

The concept of revenue derived from a gambling tax being the exclusive preserve of the racing industry is based on the historic relationship between the two, so much so that until a few years ago it was even provided for in the legislation. But that balance has shifted. Betting on horse and greyhound racing accounts for less than 15 per cent of the bets placed in Ireland and the UK these days.

At a time when every sporting organisation is working hard to generate revenue, I understand there is some support for this at Cabinet level, including from the Department of Sport. Nothing is set in stone any more as ministers need to explore every avenue open to them to raise money.

Minister for Agriculture Simon Coveney was quoted recently as saying that he "wouldn't ask for absolute ring-fencing." He added: "What I'd like to see is that, as revenue increases from the betting tax, we could put a floor on the amount of money available to the horse racing industry."

The Indecon report looked at the funding issue in some detail and concluded that while there is "a need to focus on maximising sponsorship and commercial income", its analysis indicated "that the main potential source of additional funding is from the betting industry". However, it also noted the dependence on State funding is "a major strategic vulnerability for the sector given the current state of the public finances" and that new revenue streams are needed "to wean the industry off its dependence on Exchequer funding".

The problem – as it is for all sports attempting to raise money – is identifying those "new revenue streams". Any solutions will have to be imaginative, because it isn't just a case of looking to get more money from owners, trainers or even spectators – any suggestion of a price rise at race venues would have a negative impact. At any rate, numbers in these three areas have been in decline.

If there is potential, clearly it is on the industry's commercial side, which gives it a clear advantage over others because of the country's international reputation. This should include attempting to tap into additional sponsorship, getting more value from the sale of television rights and making more of that reputation overseas, especially in new or emerging markets.

The reality is that even if there is an appetite politically to end the ring-fencing arrangement which has applied to the betting tax, it is unlikely to happen in the short term. Even were a decision to be taken to that effect over the next 12 months there would have to be a lengthy and well-choreographed lead-in time to allow the industry prepare. First things first, though, the new legislation needs to be brought forward – time is money.

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