Germany is putting together its plans for online gaming and recent efforts by the country’s finance ministers have resulted in new tax proposals that are already causing problems. They proposed a 5.3% tax on wagering online poker and 8% on online slots just so a player could pull the handle. The Düsseldorf Institute for Competitive Economics (DICE) examined the data and concluded that tax rates would have a detrimental effect on German gambling efforts, which would lead more gamblers to move their businesses underground.
The German Sports Betting Association and the German Online Casino Association, two associations of gambling operators, asked DICE to conduct the study to determine whether the tax rates were feasible. The business group returned its diagnosis, claiming that higher taxes would affect the regulated gaming market in Germany and, as a result, could potentially create a larger illegal gaming market. Eliminating underground gambling is one of the main reasons governments legalize gambling in the first place.
DICE stated that the 8% slot tax would potentially reduce payout ratios and stifle competition. These two problems, together with forcing gamblers underground, would create a trifecta of problems that would prevent the legal gambling market from flourishing in Germany. According to DICE, this would not only impair income opportunities, but also make it more difficult for the country to offer protection and addiction programs for gambling. This is the second main reason why many governments have been willing to legalize gambling.
DICE believes that finance ministers set their proposed tax rates without looking at the bigger picture. They assumed that the volume of illegal gambling would not increase. However, the Economic Group points out that this contradicts what has already been demonstrated in other countries and that the assumption is “unrealistic and wrong”. It has also been argued that it is not very necessary to include a higher tax rate in order to provide better protection for gamers as the existing framework is designed to provide security against addiction.
The tax implications would affect not only online gambling operators but physical casinos as well. DICE explains that all casinos would be forced to change their RTP (return-to-player) rates to compensate for the additional fees that would cause all operators to re-evaluate their position. Physical casinos would be at a loss if they did not adjust the RTP according to the new rate, which translates into a mandatory adjustment to avoid errors. DICE offers an alternative to avoid major shocks and possible increases in illegal gambling. It is proposed to set taxes on gross receipts, which will be between 15 and 20%. However, there is no indication that policy makers are taking the recommendations into account. Germany’s new online gaming market is expected to go into operation in July.