Turnover tax may doom German re-regulation, report warns

The report was complied by the Düsseldorf Institute for Competition Economics (DICE) for which Haucap serves as a director.

It was commissioned by operator associations the Deutscher Sportwettenverband (DSWV) and the Deutscher Online Casinoverband (DOCV), is in response to recommendations from a working group made up of the State Finance Ministries of Hesse, Nordrhein-Westfalen, Bayern and Berlin.

This working group, proposed an 8% tax on online slot turnover, as well as a 5.3% tax on poker stakes.

While Germany’s Fourth State Treaty on Gambling, the Glücksspielneuregulierungstaatsvertrag (GlüNeuRStV) legalises online slots, table games and poker for the first time, it does not set out a tax rate.

Haucap’s report noted it was important that tax “does not make legal gambling so unattractive for players that they are driven to the illegal market”.

However, it argued, an 8% stake tax for slots would do just this. 

“This stake tax massively jeopardises the goal of channeling gambling [to legal providers],  because a turnover tax of 8% reduces the possible payout ratios,” it explained.

“Thus the attractiveness and competitiveness of the legal game is deteriorated so blatantly that many players would rather play in the illegal market.”.

Because of this, the German market may fail to meet its targets for channelisation, which would then mean player protection measures would be less effective.

It was also based on a misconception that there would be no growth in the offshore market, Haucap continued.

“The finance ministries’ working group seems to assume that the volume of previously illegal gambling will not increase,” the report said. “Based on data and experience from abroad, these assumptions are unrealistic and will prove to be incorrect. 

“The range of online gambling offerings is huge and so the industry is very competitive.”

It added that the working group appears to have set a high tax for player protection reasons, in order to dissuade high levels of play. However, it continued, the State Treaty already included several other player protection measures such as a €1,000 monthly deposit limit across all operators and a €1 stake limit on slots.

Therefore using tax to limit addiction would have little additional effect, even before considering the effect on channelisation.

“A gambling stake tax does not lead to a fight against gambling addiction, but counteracts this goal,” the report said. “In addition, it also significantly reduces the tax base and thus the tax revenue.”

The report also examined what an 8% stake tax would mean for slots in detail.

Looking at a game with a 96% return-to-player rate (RTP), it pointed out that in order for revenue to be the same with the tax as it would be before, the RTP would have to be reduced to 88%. 

This, it said, would be “noticeable” to the player, and “will result in them relocating their gaming activities from the regulated to the non-regulated market”.

Those that continue to gamble with legal providers may end up depositing and losing more money instead in order to play for the same amount of time.

On the other hand, if the casino were to keep the RTP similar to before the tax, it would lose money from the game.

The report added that many casino games such as roulette and blackjack would face a similar problem, as again the tax would have an significant impact on the amount returned to players.

Haucap also argued that a stake tax for online poker would not make much sense, as the rake an operator takes from a game is only a small percentage of the total stakes in a game.

Instead of a turnover tax, the report concluded, tax should be based on gross revenue, and set between 15% and 20%.

“This is the only way to achieve a high channeling rate with high tax revenue at the same time,” the report said.

It pointed out that revenue-based taxes are the norm across Europe, with an average rate of 19%.

The treaty has already been ratified by the Minister-Presidents of Germany’s 16 federal states.

In addition, 13 of the 16 state legislatures must also approve the agreement, but states have already set up a transitional structure, whereby operators may offer online sports betting, poker and slots under the terms of the new treaty until it becomes law.