Noonan looks gift horse in mouth on betting tax
BRITISH chancellor George Osborne had no qualms in his budget last week about making sure that the gambling industry in the UK pays it fair share of tax at a time when the British exchequer is under pressure.
Osborne hit bookmakers with what Davy Stockbrokers called a "triple whammy" of tax increases. These included a tax on online or remote gambling, which will take effect on December 1, 2014.
Back home in Ireland, the legislative process of taxing online betting continues at a snail's pace. The legislation, known as The Betting (Amendment) Bill 2012 has gone through the Dail and awaits committee stage.
This bill will provide a licensing and regulatory regime for remote or online betting operators. However, the legislation that would enable the Exchequer to tax online gambling has been gathering dust since 2011. All it requires is a commencement order from the Minister for Finance – but that still hasn't happened.
The minister seems to want both measures to run in tandem – namely, making online or remote betting subject to tax and the licensing regime.
In the meantime, every month that goes by sees a loss of revenue to the Exchequer.
Based on an estimate that bookie shop betting is around €2.7bn per year and online betting is around €1.5bn to €1.8bn, the three years since the commencement order has been gathering dust would have seen around €45m to €50m going to the Exchequer.
Betting is taxed at just 1 per cent and that amount is paid by the bookie. Online gambling where the operator is located abroad is not in the betting tax net at all and no indirect tax is charged.
Aside from the fact that at 1 per cent, Irish betting tax is possibly the lowest in the world, the Department of Finance has been slow to move on taxing online gambling.
Despite the enormous growth in gambling in Ireland which sees around €4.2bn punted each year, the betting tax is yielding just €27m per year – roughly the same as it did in 1984.
The growth in gambling has also prompted a growth in employment. Jobs are prized in this economy but the question is whether taxing gambling at 2 per cent or making online betting providers pay even the proposed 1 per cent would seriously undermine the business case for what they do in Ireland.
In other words, could the Irish economy retain the jobs and see the Exchequer take in around €84m in betting tax per year (applied at 2 per cent)? I think it could. The bookies present themselves as similar to a rare delicate species of bird that, if spooked by having to pay 2 per cent betting duty, will just fly away.
Many online operations taking bets from Irish punters are actually located abroad. The Isle of Man and Gibraltar are big hubs for locating online gambling operations.
Betting is also VAT-free. This goes back to the 1970s when an EU directive was introduced aimed at ensuring charity lotteries and such didn't have to pay VAT. So if a betting operation pays betting duty, then it is VAT exempt.
So what happens with online betting operations that are not paying betting duty on bets taken in Ireland, because they are exempt. Logically, you would think they should have to pay VAT.
As with many aspects of the online world, the tax treatment is not so straightforward.
Sinn Fein TD Pearse Doherty asked the Minister for Finance in the Dail last month to outline the basis on which online bookmakers and betting intermediaries are exempt from VAT.
Michael Noonan responded that once online bookmakers are licensed under the new Betting (Amendment) Bill, he can then enact the 2011 Finance Act changes, awaiting his signature, and start charging them betting tax. Once that is done, they will be exempt from VAT.
But what about in the meantime? Noonan implied the specific facts in each case would have to be taken into account. He said: "I am advised by the Revenue Commissioners that their overall approach to tackling compliance is to make the appropriate intervention following careful appraisal of the risk factors in each case."
What does that mean? It depends on whether each operator represents a specific risk or not.
Doherty contrasted this with an example of a local supermarket, which allowed counter space to sell Mass cards for a local charity after it was approached by the charity. All profits go to the local Friary.
Yet, the Revenue Commissioners took the view that even though the supermarket was not making any profit from the sale of the Mass cards, it was subject to VAT.
The example highlights the ridiculousness of the situation where they may a genuine question for some online operators about whether they should be paying VAT or not. Perhaps they have each put in place a structure that perfectly legitimately makes them VAT exempt.
But Noonan's answer to the question, suggests the Revenue Commissioners hasn't even checked.
Noonan should do the following: he should sign the commencement order which will make all online bookies subject to a 1 per cent betting tax on bets generated in Ireland. He doesn't need to wait until the licensing regime comes in. It would cost the industry just €15m to €18m per year.
He should get the licensing legislation passed as quickly as possible and in the Budget bring the betting tax rate back to 2 per cent, where it was before Brian Cowen halved it in 2006.
Based on current activity levels – and the industry is growing – that should bring in about €84m per year, instead of just €27m for the past few years. If the bookies are right, and it does impact on betting levels and subsequently jobs, then review it after a couple of years.
I would be willing to bet that it wouldn't make that big a difference to either.
Sunday Indo Business