Point of sale tax to eat into online revenue

Australian operators are concerned a point of consumption tax introduced in South Australia may go national, which they say could potentially render the wagering industry unprofitable.

The tax came into effect in South Australia on July 1st. All betting operators taking bets from anyone in South Australia will have to pay 15 percent of net state wagering revenue in excess of A$150,000 ($119,196), even if they are not physically based there. The measure includes sports betting, horse racing, harness racing and other wagers such as the outcome of a general election or the Academy Awards.

Although South Australia has been the first to impose the tax, it may not be the last. According to Sydney based law firm Addisons, Victoria, New South Wales and Western Australia have expressed their support for South Australia’s POC Tax. It says each of these governments is now expressly contemplating the implementation of a similar measure.

Operators have criticized the new tax, saying it unfairly punishes customers in South Australia. According to Addisons, some are ceasing business in the state, while others are reducing services. CrownBet and SportsBet for example are cutting back on their promotion of South Australia horse racing to decrease the amount of revenue generated there.

“If this POC tax were to go national, every single betting agency is in a loss-making position,” said Ladbrokes Australia CEO Jason Scott. "As an industry we now need to find a way to pass [the cost of tax] onto the consumer."

"There are a couple of methods we can do that: one is a differential pricing, less competitive pricing, or less enticing promotions. Another way is a push for offshore staff... meaning fewer jobs for Australians.”

Scott told a panel at GRWA in Sydney that Ladbrokes is in the process of building a differential pricing system, which will make bets more expensive for South Australia customers.

He also added that the group is preparing for a national POC tax, which he expects will be in place by July of next year.

"As an industry, politically, we don't have many friends, we're an easy target. To me, it's a money grab,” he said. "The perception is that bookmakers make a lot of money.”

Total gambling expenditure in Australia for the 2014/2015 year, the latest data available, was A$22.7 billion, up 7.7 percent. For South Australia, total expenditure was $1.02 billion, with the bulk of that figure bet on pokies. That puts it in sixth position out of the country’s eight jurisdictions, with New South Wales and Victoria in the lead with $8.91 billion and $5.75 billion respectively.

Ladbrokes launched a digital operation in Australia in 2013 and posted net revenue for the year to April up 59 percent. Paddy Power Betfair’s Australian unit SportsBet reported net revenue of GBP312 million last year, with profit of GBP$84 million, up 38 percent.

SportsBet lobbied hard against the POC tax in South Australia, emailing clients to contact their local politicians to protest.

It argues the new tax will make "wagering in South Australia more expensive than anywhere in the world" and means shorter odds on betting markets.

The South Australian government has defended the tax, saying it is an initiative to tax money where it is actually earned.

Dini Soulio, Liquor and Gambling Commissioner, Consumer and Business Services at the Attorney General's Department, South Australia - told the panel that the tax was to create a level playing field for those operating in South Australia. He argued that taxes paid by citizens in South Australia need to be allocated to programs to alleviate the harm from problem gambling.

"This is a government initiative to tax in relation to where money is earned,” he said. "What the government saw was that a number of operators who were making money from people in South Australia through betting operations, and the government was dealing with harms that arose from that industry."

"If you're making money in South Australia, you should be taxed in South Australia."

The tax is part of a broader issue that has been simmering over taxation of online gambling companies, which have been accused of regulatory arbitrage.

Many of the country’s online betting operations are based in the Northern Territory, where they benefit from a lower tax regime and market their services elsewhere in the country.  As of May this year, there were 21 internet bookies registered in the NT, including William Hill, CrownBet, bet365 and Ladbrokes.

“With the rise of online betting on sports and racing, international bookmakers have set up shop in virtual gambling tax havens,” the South Australian Council of Social Service said in a position paper. “The revenue they get from South Australian punters is then taxed in the Northern Territory or Norfolk Island where gambling taxes are capped at very low levels. That is not fair to local bookies who pay gambling taxes here, or to the South Australian community who miss out on the revenue which could pay for vital services – including the harm caused by gambling.”

According to data compiled by the Queensland government, total expenditure on all forms of gambling in the Northern Territory jumped almost 26 percent in the 2014/2015 year, with sports betting seeing growth of 40 percent. That compares with a decline of 0.4 percent in South Australia, with sports betting down 4.5 percent.

The South Australian government estimates that it will raise an additional $9.2 million from the tax, with about $500,000 slated to go to gambling harm programs.