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“Market operators are forced to block opportunities for big wins,” - economist Yuriy Gavrilechko on taxation of gambling business


  • Gambling legalization
  • 2020-12-07 18:14:45
  • 336
Economist Yuriy Gavrilechko on taxation of gambling business

The draft budget for 2021 has already included the profit from the sale of licenses to gambling operators. According to parliamentarians, this should bring almost 7.5 billion hryvnas. At the same time, the Verkhovna Rada has not yet accepted amendments to the Tax Code - how exactly the gambling business will pay to the state. Economist Yuriy Gavrilechko is sure that the legislation needs to be changed. Otherwise, the gambling business will simply not be able to fully operate. Why? Yuriy Gavrilechko spoke in an interview with gamingpost.net.

Yuriy, how does the gambling business pay taxes abroad? Is there an example that Ukraine can follow in the legalization of the gambling business?

In the vast majority of countries, there is no single taxation scheme for the gambling business. And in the whole world there is no universal model of taxation that could be taken as a basis and as an example to speak about a certain unique concept of gambling business regulation. Historically, the taxation of gambling business was carried out according to the scheme of the so-called "suppression of unwanted consumption", tax rates were initially set too high to reduce entrepreneurship in this area. Such a system existed a couple of hundred years ago and has survived to this day. Despite the fact that the gambling business itself has changed a lot during this time. If we divide the objects of taxation, we can distinguish three groups of  ''what is taxed''. The first group is the income or profit of enterprises. Taxation works according to this scheme in France, Germany, Egypt, Canada, Venezuela. Very wide geography. There is a second group in which the gambling equipment operated by the organizer of the gambling business is taxed. A significant part of the post-Soviet countries followed this kind of taxation, now it is in Russia, in Kazakhstan, in Turkmenistan, in Kyrgyzstan. There is also in the Dominican Republic. And finally, there is a mixed system, when taxes are taken on both gambling equipment units and profits. The mixed system operates in Latvia, Bulgaria, Spain. We, in Ukraine, are also planning to take tax on income. I repeat, both from profit and from income. We are unique in this respect, to our regret. And our uniqueness suggests that with such an approach the investor will not be very interested in us.

What exactly can scare an investor away? A lot of taxes or a high cost?

Business entry rates are very high in Ukraine. The cost of a license in an offline casino for 5 years is 60 thousand minimum wages. That is, 300 million hryvnas for a casino in Kiev and half of this amount for casinos in other cities. You will have to pay a separate annual fee for gambling equipment - 175 minimum wages or about 1 million hryvnas for a roulette table. 90 minimum wages or 450 thousand hryvnas for a table without roulette. Six minimum wages or 30 thousand hryvnas for one slot machine. Plus, you will have to pay an additional 7.5 thousand minimum wages for the slot machine hall. Let me remind you that the minimum wage will increase next year. Accordingly, from 2022 these amounts will increase. Indeed, by the end of next year, the minimum wage is planned to be set at 6500 hryvnas. The cost of the license is calculated based on the minimum wage valid at the end of the previous year. Plus, in Ukraine it is still planned to take tax on gross income of casinos. And this is despite the fact that income tax also remains. Such taxation can be justified solely by the fact that the state is not interested in someone doing this business. There are actually two types of gambling business that can boast of lower costs - online casinos, 6.5 thousand minimum wages for a five-year license. The organization of online poker is paid separately - 5 thousand minimum wages or 25 million hryvnas for a five-year license. At the same time, it is not entirely clear why an online casino that can afford a fairly wide range of different games costs only 20 percent more than just online poker. Where is the logic, I don't really see it yet.

What do you think needs to be changed in the tax law so that the gambling business could develop after legalization?

Remove taxation of gross income, leave license fees and income tax. Stabilize such taxation for the next 5-10 years. If this is not done, then, to be honest, I see only the development of the system of online games, where it is quite clear what you have in the expenditure side. This expenditure part is not burdened with either renting premises, or staff salaries, and there are not many other things that are present in organizing an offline business. But online gambling activity is unlikely to bring such a level of income to the budget as traditional casinos could. At the moment it is impossible to calculate the profitability of the gaming business. In any kind of activity, when turnover taxes are removed from you, there is always a risk that you will go into the red. And the more taxes are charged from you, the less money you can leave to pay as a prize. That is, domestic market operators are initially forced to organize the process in such a way as to block the possibility of large wins and frequent wins. Otherwise, it will simply become economically senseless for operators to work. In our conditions, I believe that it would make sense for us to leave only the license fee for a 5-year transition period. And, perhaps, following the example of the same France, introduce some kind of subscription for visitors to offline casinos in gambling zones. The cost of which would go to the local budget. And in no case introduce taxation of winnings in casinos. If you are taxing casino winnings, then any casino gambler should be eligible for a casino tax credit. Economy is the economy. A reasonable question arises. Why should an individual play in a legal casino if he can do the same in an illegal online casino and not pay tax on winnings? What's the point of giving 19.5% in taxes, that is, 18% of personal income tax and 1.5% of the military tax, if you can not do this? At the same time, our tax on personal income is spelled out exactly as a tax on income. That is, if you place 1000 hryvnas bets, and you win on your bet, for example, 300 hryvnas. Then you pay tax not from profit, that is 300 hryvnas, but from income, that is 1300 hryvnas. The question is - what's the point?

More than once we have heard a statement that the legalization of the gambling business will make Ukraine more attractive for investors. How do you assess the situation with foreign investors now? Will they come to Ukraine?

If the tax issue is not settled, investors will not go to Ukraine. In Bulgaria, 50 euros is paid for one slot machine monthly and 18% per month from the income of the gaming business. In Latvia, a fee is also paid on each slot machine, but 15% income tax is paid. In Poland there is a profit tax and a license fee, which is lower than in Ukraine.

When will we be able to confidently say that absolutely legal gambling business has really started working in Ukraine, and not only on paper?

There was a criminal business that got a chance to become legal - this is undoubtedly a plus. But to what extent it will be organized so that it is economically profitable is a task for our parliamentarians. It is always the economic benefit of a business that determines whether it will work in the light or in the shade. If the difference between light and shadow work is in the range of 5% to 20%, then most likely the business will work in light. To have no problems. And if more - the business will work in the dark. After all, the costs are too high. Any system should have a huge transition period, which is necessary for building business models, understanding profitability, for creating lease agreements, in the end, in order to raise money for all this. Because this business, like any big business, does not work on its own money. Business lives off borrowed resources. In order to understand how much this borrowed resource will cost you, you must understand what taxation system will be used and what expenses will come. It's not that taxes are high, it's that they are unpredictable. As soon as these costs are predictable, then we can say that within 3-6 months the legalization process will move from the legislative sphere to the implementation sphere.

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