Online Slots tax in Germany: Deadly for the new gambling regulation?

Is a slots tax coming to Germany? There is currently a big discussion about the introduction of a slot machine tax. The federal states, which are responsible for gambling regulation, are planning a tax of 8 percent on the turnover generated by slot machines online.

Such a tax could lead to huge problems. In principle, it should not surprise anyone that the German states have come up with the idea of taxing gambling on the internet.  Now that the new State Treaty on Gambling (Glücksspielstaatsvertrag) has made it possible to regulate online gambling for the first time, it is all about money. But the current proposal to collect eight percent of every slot turnover as a tax is causing outrage. The calculation is quite simple: most slot machines have payout rates of over 95 per cent. If the providers then had to hand over eight percent of the turnover in the form of taxes, there would be nothing left in the end. The providers would probably even have to pay more to be able to offer online gambling at all.

Slot machine tax will be problematic for business model

There is a way out: the payout ratios (RTP) of the slots have to be lowered. However, this is a difficult approach. For one thing, it would be a huge technical effort if all game manufacturers had to change the payout ratio only for Germany. For another, it would make the games much less attractive for gambling fans. This would create a new incentive to favour providers on the black market.

The German Online Casino Association (DOCV) and the German Sports Betting Association (DSWV) have commissioned an expert opinion to examine the effect of such a tax. In this expert opinion, the economist Dr. Justus Haucap comes to the conclusion that the slots tax in its planned form would considerably endanger the success of the regulated market. Together with other stipulations coming into the market as a result of the new gambling regulation, for example, low deposit limits and low stake limits, the slots tax could lead to the German gambling market having poor chances on the internet from the very beginning. Taxing directly at the source does look good to a layman. But connoisseurs of the matter immediately see that a huge problem arises. If the games become less attractive because of the slots tax, that helps no one. Gambling fans in Germany will continue to have the option of finding alternative providers on the black market. It cannot be assumed that Germany will manage to close the black market completely. In any case, that would be a big surprise, because so far no country in the European Union has even come close to doing so. So why introduce a slots tax at all costs, which in the end only creates new problems? Perhaps the representatives of the federal states have been inspired by the sports betting tax.

Betting tax as a model for slots tax?

Taxation at the source makes sense in some areas, for example when it comes to interest income. But in the case of gambling and sports betting, there would certainly be better ways to collect taxes. Bookmakers active in Germany, some of which have recently been granted a German licence, have to pay a betting tax of five per cent on all stakes. This betting tax has not dramatically changed the sports betting market. But resourceful sports betting fans have been caring for many years to place bets with bookmakers who do not charge a fee to pay the betting tax. A fee for the betting tax? It has become established that sports betting providers in Germany, with few exceptions, deduct a fee, usually from winnings, to pay the betting tax. The following applies to sports betting: the payout ratio is so high that the bookmakers cannot afford to pay the betting tax from the company’s profits. That is why German sports betting fans have to pay a special fee. One important exception: Tipico has been advertising fee-free sports betting for years. If a slots tax is introduced, customers could also be asked to pay. The only alternative would be to reduce the payout ratio of slots. But that would make the games less attractive.

In his report, Dr Justus Haucap proposes taxing the winnings. That would be a sensible approach because then the accounts would be settled at the end. The gambling providers would have to document in detail how high the winnings are in Germany. The state could then collect, for example, 20 per cent of the winnings. The bottom line would still be attractive tax revenues. But the channelling of the market would not be jeopardised by a problematic slots tax. What exactly is meant by channelling? If too many gambling fans opt for the black market because slots are unattractive due to a special tax, a significant part of the turnover would take place in the illegal sector. Good channelling means that players are largely on the legal market. This is also one of the most important goals of any good gambling regulation in terms of player protection. It is to be hoped that the representatives of the federal states who have to decide on the slots tax will not close their minds to the good arguments of the gambling industry and the scientists. Otherwise, gambling regulation in Germany could very quickly fail due to poor channelling.

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