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This week saw the issue of amendments to remote gaming regulations by the Lotteries and Gaming Authority. The LGA commissioned the Malta Remote Gaming Council (MRGC) to lead the consultation process which will be discussed at a public meeting on the 24 October.
According to Dr Zammit Maempel, chairman of LGA the island will shortly have over 100 licensed operators generating new jobs and opportunities. These amendments coincided with a press conference given by Betfair who announced the issue of a five year licence in Malta. For the moment Betfair's new office in Malta is planned solely to host a new betting product, called “exchange Poker”. As a brief introduction, it is good to note that Betfair is an internet betting exchange that has revolutionised the gambling industry by allowing punters to place their bets directly to each other rather than placing their bets through a bookmaker.
Betfair is a West London-based group that had been encouraged to relocate to Malta after the UK Treasury did not seem to be interested in reducing the tax regime for betting exchanges.
According to an influential UK newspaper many are expecting the UK Gambling Commission to undertake a comprehensive review, which will also cover tax paid by bookmakers and casinos.
At present Betfair pays 15 per cent gross profits in tax like other bookmakers but speculation is rife that this will change and it will be moved to a tax paid on the winnings of its punters. So far Betfair have enjoyed booming fortunes in recent years, partly thanks to the introduction of fixed odds betting terminals - arcade-style games that allow punters to bet on virtual casino games. So the logic of the game will tell us that unless the UK Commission moves to lower the 15% tax rate there could be a "mass exodus" to Malta or to other igaming jurisdictions.
Recently Mario Galea, chief executive of Malta's Lotteries and Gaming Authority, told The Times he had been inundated by UK operators who are showing keen interest to relocate. This is because UK operators are concerned that their government is leaning towards an all-or-nothing approach whereby any firm with a presence in the UK must have all its remote gaming operations there. British regulations require gaming servers to be located offshore, but the lack of a clear regulatory or tax picture makes it unlikely many will consider moving their servers back. Mr Galea said the UK was playing a dangerous game by moving away from a pure regulatory approach and adopting a business agenda. But it is interesting to note that the upgrading of igaming regulations issued this week has paved the way for a new breed of business models including poker and skill games. For the first time it introduces a new concession that for time critical multiplayer games such as poker whose outcome may be affected due to variable response time that the servers will be located in overseas locations. There has also been a sustained effort to streamline the licensing costs and the tax schedule now allows for the taxing of a class 3 model.
This model caters for operators who do not partake of the risks but act as promoters of remote gaming. This would include poker exchanges and clubs that collect commissions from various players on organised tournaments or virtual poker rooms. The tax on such operations will now be 10% on income which is defined as gross income (rake) less the bonuses, commissions and payment processing fees.
The tax base has been calculated so that the effective tax goes down to about 6.5 % of the gross income.
This is arrived at when one assumes that deductions would usually amount to 35% of gross revenue. Now here is the rub as the 6.5% rate may give the impression of being on the high side. Ostensibly the UK trade associations are clamouring the Gambling Commission to lower the tax rate to 2% on gross income. Lobbyists are hoping that the industry will successfully persuade Treasury to trim the tax on online gaming to 2% for operators licensed under the new Gambling Bill.
It is believed that Gordon Brown the exchequer may consider such a low tax rate to encourage more firms to domicile in the UK, after carefully listening to the views of various industry representatives.
Quoting Nigel Payne of Sportingbet currently the chief executive of one of the industry’s largest firms; he said a rate of 2% could encourage him to consider relocating his gaming servers currently in offshore jurisdictions and license them in the UK.
While the result of the Treasury's deliberations may be the maintenance of the status quo, the move to take out a betting licence in Malta is a clear sign that Betfair is determined to keep all its options open.
Naturally it is hoped that once the draft amendments are discussed at the MRGC forum this matter and other points will be revised and a happy compromise is reached.
The secret of our success in attracting 100 quality operators has to be sustained.
gmm@pkfmalta.com
The author is a
partner in PKFMALTA
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