Germany is putting its online gaming plans together, and recent attempts by the country’s finance ministers have resulted in new tax measures that are already causing problems.
For online poker stakes and 8 percent for online slots, they proposed a levy of 5.3 percent, only for a gambler to pull the handle. Studying the results, the Düsseldorf Institute for Competition Economics (DICE) concluded that the tax rates would have a negative impact on Germany’s gaming efforts, leading to more gamblers taking their business underground.
Demand for analysis
In order to decide whether the tax rates were feasible, the Deutscher Sportwettenverband and the Deutscher Online Casinoverband, two gaming operator associations, demanded DICE to perform the analysis.
The economics group returned its diagnosis, claiming that higher taxes would be harmful to the regulated gambling industry in Germany and could, as a result, theoretically generate a wider market for illicit gambling. One of the main reasons why governments are trying to legalise gambling is to suppress underground gambling.
DICE clarified that the 8 percent slot tax would theoretically make pay-out ratios smaller and suppress competition. Combined with driving players underground, these two issues would create a trifecta of problems that would prevent the legal gambling industry in Germany from flourishing.
Damage of revenue possibilities
According to DICE, not only would this damage the revenue possibilities, but it would also make it more difficult for the country to provide services for gambling safety and addiction. That is the second main explanation that many governments are prepared to legalise gambling.
DICE claims that, without looking at the bigger picture, the finance ministers agreed on their proposed tax rates. They believed that the amount of illicit gambling will not increase; however, the economic group points out that this is contrary to what has already been shown to have occurred in other countries and that the expectation is “unrealistic and incorrect.” It also asserted that there is not much need to provide a higher tax rate in order to provide better security for players as the new system is being introduced.
Not only will the tax consequences impact online gaming operators, but physical casinos as well. DICE states that to compensate for the extra fees, all casinos will be required to change their return-to-player (RTP) prices, which would leave all operators re-evaluating their position. If they didn’t change the RTP in compliance with the new rate, which translates into a mandatory modification to prevent failure, physical casinos will operate at a loss.
DICE provides an option in order to prevent any big shakeups and potential spikes in illicit gambling. It indicates that taxes, ranging from 15-20 percent, should be fixed against gross revenue. There has, however, been no suggestion of whether the guidelines are being taken into account by policymakers. It is still predicted that Germany’s new online gambling market will go live this July.