Czech parliament passes softened gambling tax bill

By bne IntelliNews April 13, 2016

The Czech lower house on April 13 approved new regulations and taxes on the gambling and lottery industries. Lobbying appears to have softened the impact on larger companies, while most are happy that the new rules will allow the authorities to block access to foreign-based online competitors.

From 2017, companies will be required to pay a 35% tax on revenue from “technical equipment”, such as electronic gambling machines and other one-armed bandits, on top of the standard 19% corporate tax. However, the sales of betting agencies and lottery companies, run by bigger players such as Prague-listed Fortuna - controlled by Czech-Slovak private equity group Penta Investments - would face a levy of no more than 23%.

Finance Minister Andrej Babis had wanted three tax rates – which he said would bring CZK1bn (€37mn) into state coffers. The central and regional governments will collect CZK450mn less in tax revenue under the draft law, he told reporters.

Under the current gaming legislation, companies are subject to a 20% tax on their Gross Gaming Revenue (GGR). The introduction of the new conditions for the industry have been the subject of long debate, with powerful business groups lobbying hard against .

That effort appears to have been worthwhile. Babis had wanted three rates: 25% for odds betting, 30% for number lotteries, and 35% on technical games.

“According to our calculations, the approval of the draft tax would have a positive impact on Fortuna’s operating profit before depreciation of about €1.3mn compared with the original proposal,” Fio banka analyst Michal Krikava said in a note.

Czech gaming association Spelos, which represents smaller manufacturers, distributors, operators and owners of gaming equipment, cried foul. It argues that tighter regulation will simply encourage illegal betting, and so end up costing the state even more.

Others object to censorship of the internet in principle. Human rights groups have protested a provision that would ban people who have declared bankruptcy, are receiving state benefits, or have criminal records from gambling.

However, few have protested moving the goal posts when it comes to foreign operators. Under the current law, only Czech-based companies can legally provide online gaming, as customers must register in a shop before they can use the services.

This has meant that companies present only on the internet are, in theory, operating illegally. But the government has made little effort to enforce this restriction, as reflected by prominent football team sponsorships and banner adverts for online gaming operators.

That could change as of 2017, if the draft law is approved by the Senate and signed by the president, as expected. The draft law obliges internet service providers (ISPs) on Czech territory to block access to websites on the government’s list of illegal internet gaming sites.

Fortuna is the largest operator of fixed-odds betting in the region, as measured by total amounts staked at retail points of sale. It is active in the Czech Republic, Slovakia, Poland and Hungary. Other bigger players on the market, such as KKCG and Emma Capital, owners of top lottery company Sazka, long ago hedged their bets by expanding into new markets.

 

 

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