Many online gaming companies operating in the United Kingdom are having to reexamine the way they presently do business following a speech given this past March by Chancellor of the Exchequer George Osborne in which he addressed the imbalances in the current tax system.
Beginning in August 2017, online casino and bingo operators will be liable for tax on free plays offered to customers as an incentive or reward for playing on their site.
Freeplays are a very popular way for online gaming operators to attract new players and compensate existing players for loyalty and frequent play.
Other gaming providers, such as sports books and horse racing operators, are already taxed on free and discounted bets that they provide their customers. The reform will bring remote casino and bingo into alignment with the General Betting Duty, according to the Budget report that accompanied Osborne’s speech.
“Remote gaming operators currently benefit from a more generous tax treatment when they offer discounted or free gambling (‘freeplays’) to customers in Remote Gaming Duty than would be the case for operators offering free bets on things like football and horseracing,” the budget document states.
“The government will therefore amend the tax treatment of freeplays in Remote Gaming Duty to bring it into line with the tax treatment of free bets in General Betting Duty.”
Implementation of the new tax is expected to cost the UK government £20 million in the 2016-17 fiscal year, but in 2016-17 it is estimated that the tax will generate £45 million with that number doubling to £90 million the following year. Current predictions have the new tax bringing in as much as £110 million by 2020-21.
Those numbers however are predicated on gaming companies providing the same incentives and rewards for online casino games as they do today, but that is not likely to be the case.
Remote gaming providers already operate on razor thin margins as a result of the addition of a 15% point of consumption tax in 2014.
One path forward for remote gaming operators that currently use freeplays is to replace the staple of their incentive and reward programs with other products that will attract players, namely better odds.
By increasing the amount that wagers pay out, operators may be able to find a replacement for freebets; however, a new marketing strategy will also need to accompany the new product, and it will be no easy task to replace the marketing power of the word “Free.”
