Gambling, Taxation and the Internet

1
Gambling, Taxation and the Internet

• Presentation to Business Forum International
• Prof Peter Collins
• University of Salford

2
Overview

• The Political and Economic Background
• Capturing the surplus abnormal (monopoly or
  oligopoly) profits for the public from
  land-based gambling
• Problems for taxation of remote gambling

3
Why is Gambling Treated Differently from other
Leisure Activities?

• Public Opinion (and the democratic process)
  generally endorses the liberal principle that
  people should not be prevented by governments
  from living their lives as seems best to them,
  except when their choices unjustifiably harm
  others
• Consequently governments must seek to reconcile
  two conflicting convictions
• With respect to gambling (and other vices)
  public opinion holds two conflicting views
• - Adults should be free to decide for themselves
  how to spend their own time and their own money
  enjoying themselves even if others regard their
  choices as foolish or immoral
• - Gambling is different from other leisure
  products or services to the extent that it may
  lead to addiction (loss of choice) and have for
  this or other reasons have negative impacts on
  others such as family members, other residents of
  the community and tax-payers

4
Political Consequences of this Democratic
Consensus

• Government seeks to permit some but not too
  much gambling (often to avoid or eliminate the
  evils of an illegal industry)
• Government seeks to regulate the limited gambling
  it does permit so as to minimise the perceived
  negative social impacts, esp crime, addiction and
  sleaze
• Government seeks to harness gambling to the
  provision of economic benefits for the public as
  a whole including those who gamble little or
  not at all.

5
Economic Consequences of the Democratic Consensus

• Restriction of supply to minimise negative
  impacts leads to protection of those who do
  secure licences from competition
• This enables them to raise prices with increasing
  costs and so make abnormal profits, i.e. greater
  profits than they would make if they had to
  compete in a fully free market
• Government does not regulate the price in favour
  of consumers as it does with other oligopolies
  and monopolies e.g. utilities and transport
• Instead it seeks to capture the abnormal profits
  through various forms of taxation, i.e. it
  discriminates against gamblers and makes e.g.
  poor lottery players subsidise rich opera-lovers.

6
Why are Gamblers Discriminated Against by the Tax
System?

• Because expensive gambling will discourage
  problem gambling esp amongst the poor
• Because gambling creates externalities (the
  equivalent of pollution) for which the
  industry/gamblers must pay
• Because such taxes are comparatively unresented
  they affect a minority who dont much notice them
  and save a majority from having to make up the
  shortfall with other taxes (and they please the
  anti-gamblers). Cp liquor, tobacco.

7
Forms of Land-based Taxation

• Nationalisation and Quasi-nationalisation
  (Canada, Holland, Sweden, Austria, Horse-racing
  betting in France, all lotteries)
• (High) Gambling Privilege Taxes (Europe,
  Illinois)
• Contributions to good causes. (Compulsory UK and
  SA Lotteries Voluntary Australian and UK clubs
  Charity bingo)
• Required investment in public interest projects
  integrated entertainment complexes including
  casinos. (For Gambling Tourism Originally but
  decreasingly - Monte Carlo, Nevada, Atlantic City
  Biloxi, Macao, Sun City for general regeneration
  and general tourism Melbourne Cape Town
  Singapore New UK casinos
• Hybrids, e.g. Cape Town

8
Peculiarities of Remote Gambling

• It is like an illegal industry which cannot be
  suppressed through law enforcement (esp against
  consumers) at acceptable political costs (cp nude
  bathing drugs UK gambling pre-1963 and 1968.
  Contrast financing terrorism and child
  pornography)
• Like the rest of e-commerce it is anarchic and
  needs some international regulation which does
  not yet exist
• It is presently close to a a perfectly free
  market in which there are no abnormal profits
  (economic rents) to be captured

9
Consequent problems for government

• Irt remote gambling, with companies which offer
  remote gambling but also have land-based
  businesses betting, television, telephony
  governments can satisfy the majority democratic
  wishes of their electorates, viz that supply be
  limited, negative social impacts addressed by
  regulation and benefits delivered to the general
  population including non-gamblers through various
  forms of taxation
• But they cannot achieve this with companies based
  wholly offshore and supplying only remote
  gambling
• To achieve this in the absence of international
  agreements govts need to attract remote suppliers
  to submit voluntarily to their jurisdiction
• They therefore need to offer greater benefits
  and/or lower costs compared with competing
  jurisdictions

10
Possible benefits to companies of voluntary
submission to a jurisdiction's regulations

• They will get the cachet of being able to say
  they are regulated in jurisdiction X and this
  will inspire player confidence and increase sales
• They will be allowed to advertise to a large
  market
• They can float their companies
• They can expect protection against the laws of
  anti-gambling jurisdictions from their government
• Their executives can spend time somewhere
  agreeable
• Their regulatory costs will not be onerous
• Their total gambling bill will be low

11
The Special Problem of Taxation

• If it is as high as land-based tax, companies
  wont come
• If it is lower than land-based gambling tax,
  land-based companies will (rightly) complain of
  unfair competition

12
Conclusion

• This problem is presently insoluble
• Remote gambling will stay in small low-cost
  jurisdictions as at present, exploiting the
  freedoms (idiotically) offered by European law
• Eventually governments will collaborate on
  regulating e-commerce generally because tax
  avoidance and other common problems will become
  too severe
• Remote gambling will be included in this process
• Industries and Governments wishing to legalise
  remote gambling would do well to start
  establishing common agreements pro-actively about
  technological standards, player protection,
  problem gambling and taxation