There was dismay across the board from Britain’s amusement and gaming industry at the announcement of the Machine Games Duty (MGD) rates which come into effect next year.
From February, MGD will impose a gross profits tax of 20 percent on most gaming machines, with a lower level of five percent applying only to those with maximum stakes of 10p and maximum prizes of £8. The industry had lobbied for rates of around 15 and three percent.
MGD replaces the existing Amusement Machine Licence Duty, which is a simple per-machine fee rather than a tax on profits. VAT will also no longer be charged on machine gaming, although that is seen by many as a double-edged sword because it will prevent operators from recovering the VAT on expenses related to their machines.
Said Derek Petrie, president of trade body BACTA: “The end for many amusement arcades is nigh. Despite hundreds of small business owners warning politicians for 18 months now of the danger that MGD would present to our industry, the chancellor has failed to listen. The rates are simply too high and will result in another cruel wave of closures on the seaside. 300 arcades and 1000 jobs have already gone, now more will follow.”
At Business in Sport and Leisure (BISL), CEO Simon Johnson took issue with the idea put forward by the government that the rate of MGD would be revenue-neutral compared with the current regime, and said it “threatens to be enormously damaging for the vast majority of gambling operators”.
Warnings came also from the Association of British Bookmakers and from Ralph Topping, CEO of William Hill, who accused the chancellor of “highway robbery” and said bookmakers would collectively be down £48m a year, and pubs £14m. He added: “What is worrying is that either the Treasury can’t get its sums right or it has started with the answer and turned a blind eye to any evidence that didn’t suit their purpose.”
Analysts of the sector tended to agree that the effects would be harsh. At broker Collins Stewart, Simon Davies said William Hill itself would lose around £11m in the first year, and Ladbrokes £14m.
Gaming industry consultancy GBGC observed: “The government previously said that the introduction of MGD was not intended to be a revenue-raising measure and the gaming industry will struggle to understand how a duty rate of 20 percent marries with the government’s previous statements. Additionally, compliance costs, which will by the government’s own estimates cost £85m, will severely affect small-to-middle-sized operators.
“At this point, we are worried that the government is looking more and more like some continental European countries that are using the gambling industry as an ATM machine, at the expense of jobs and innovation.” Illegal gaming as well as business closures could be the result, it warned.
The effects would vary across different sectors of the gaming and leisure industry, said Barny Horn, betting and gaming tax partner at Deloitte. Overall, he argued, arcades would actually be better off: “The changes will reduce the tax burden for adult gaming centres, family entertainment centres clubs and the majority of pubs. Bingo clubs are likely to have a slight increase in costs, and casinos and bookmakers are likely to lose.” But he acknowledged that “even within a sector, the precise impact will differ from business to business”.
Other developments in this year’s Budget affecting the industry include a 15 percent tax on offshore e-gaming (see box). For the first time, the levy on Internet gambling will depend on where the player is located, rather than the business; currently, it is estimated that only around ten percent of e-gaming activity in Britain is taxed. This is expected to come into effect in late 2014.
But it is unlikely to be the last upward shift in the British gaming tax regime: it has been speculated that the government’s long-term aim may be to increase all gambling taxes to 20 percent.
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