By re-regulating the Hungarian gambling market from the fundamentals, the Hungarian government could kill two birds with one stone: it can raise the tight budget's income and legalize online players' status. Provided that the stone is well-aimed.
With the appearance of the first sports betting, poker and casino sites on the internet, Hungarian gamblers found themselves in a situation that was hard to solve if they wanted to obey the law and gamble at the same time. According to Act XXXIV/1991 on the organization of gambling, the permission of the Hungarian State Tax Authority (NAV) is needed to organize, to provide or even to advertise remote gambling or sports betting in Hungary. However, for more than two decades, only the state-owned monopoly Szerencsejáték Zrt has obtained such permission, so online gambling games organized in Hungary by other operators are illegal. Therefore, Hungarian visitors playing on these sites are breaking the law.
However, the current legislation does not penalize Hungarian players for taking part in illegal games, but participation in these games is at the player’s own risk as prize-related claims by juridical process are not enforceable. On the other hand, participation of Hungarian citizens in gambling and betting abroad is not in the under the scope of the current law, so these particular cases do not fall within the competence of the tax authority, NAV said to BBJ.
In an effort to clear up these irregularities, the Hungarian government has submitted an amendment of their 1991 Gambling Act to the European Commission, proposing a gross profits tax (GPT) of 20% for licensed operators and a concession fee of HUF 100 million per game type per year. Additionally, a revenue-based 2.5% quarterly gambling management fee is to be paid, except for those who have a mirror server in Hungary. According to the amendment, players would no longer be obliged to pay taxes, as operators would do it instead.
Harmful or not?
While the Economy Ministry is trying to find new ways to raise budget revenue to keep the deficit under the 3% threshold of the GDP, the relation of the ruling party and gambling is ambivalent to say the least. In November 2011, the tax on slot machines was raised from HUF 100,000 to HUF 500,000. In a short period, half of these machines were shut down, not being able to produce enough revenue to cover the tax expenses. A year later, slot machines were outright banned from Hungarian bars, citing socially harmful effects. State secretary of the Prime Minister János Lázár also claimed state security reasons resulting in the decision, although he did not expound his statement at all. The resolution caused a roughly HUF 30 billion loss of income for the budget, which is why the government aims to collect the same amount from the new online gambling tax.
But the Remote Gambling Association (RGA) disapproves the idea, claiming that the planned HUF 30 billion tax income from gambling games is absolutely unrealistic, while the concession fee is disproportionate even by Western European standards.
“The concession fee is at the same level as on the British market, except that the British population is six times higher,” RGA CEO Clive Hawkswood told the BBJ. “International experience clearly shows that if the right balance can be achieved, it will result in clear benefits for the Hungarian Government and Hungarian consumers. Unfortunately, we also have experience from jurisdictions such as France that measures which effectively prevent the establishment of a competitive domestic market will cause very serious problems and will lead to consumers continuing to seek out operators in other jurisdictions,” Hawkswood added.
While the government would badly need new operators on the market to achieve the HUF 30 billion tax income goal, the high level of taxation also may deter potential Hungarian operators who would like the join the market beside the single current legal operator, Szerencsejáték Zrt. For most of the operators, a triple concession fee should have to be paid (HUF 100 million for sports betting, casino and poker each). Based on current estimates of the RGA, the high concession fee could undermine the whole concept of “legalizing online gambling”, i.e. instead of the planned HUF 30 billion tax revenues, only HUF 5 billion should be expected including the tax paid by the state-owned gambling operator Szerencsejáték Zrt.
Szerencsejáték is not enough
By itself, Szerencsejáték is unable to meet such a huge tax payment expectation. To achieve alone an additional profit of HUF 130-140 billion in Hungary would be necessary, which requires 13-14 times more income from the online branch in 2013 than the combined offline and online income of Szerencsejáték Zrt last year. “While revenues from non-traditional marketing channels, such as the internet, ATM, phone or mobile, are proportionally increasing, the share of these in total sales revenue did not reach 5%,” Szerencsejáték said.
Meanwhile, the brand new online site of Szerencsejáték, slated to open a long time ago, is still not functional. Earlier statements promised the site to be ready by the start of the 2012 UEFA European Football Championship and later by the Olympic Games. While Szerencsejáték still did not give a precise date on the grand opening to BBJ, market rumors expect it to launch in the near future. Given the low proportion of online sport betting and gambling in Hungary and the fact that 2013 lacks any major sport events that would catch the attention of players, a significant increase in income is not expected before the 2014 FIFA World Cup.
Restrictions easy to bypass
Also, the government must open towards operators instead of scaring them away, as non-cooperative providers are hard to reach, grab or punish effectively. “When it comes to sanctioning the operators not obliging the Hungarian rules, the government has very few options to follow. They could ban advertising related to the provider or they could block the IP address of the operator in the country, which is easy to bypass. They might also try to block the financial services of non-cooperating operators in Hungary, but players could easily bypass these restrictions as well by opening a bank account abroad,” Hawkswood added.
As their operation is neither legal nor followed in Hungary, NAV was unable to provide any official financial details on the foreign-based operators. But through non-official channels, it is very clear that foreign operators are very active in Hungary. Insider gambling blog Ittapiros estimated foreign operators’ advertisement sales in Hungarian TV channels at around HUF 615 million at list prices, based on the number of appearances and average ad prices.
However, the market has shrunk significantly, as the number of appearances in 2012 lags behind that in 2011 by 70%. Most of the advertisements were broadcasted during the Olympic Games and in November, when beleaguered poker site Full Tilt was restarted. According to Ittapiros, 46% of ads were related to poker, 39% to sports betting and 15% to casinos.
Legal or not, online gambling winnings on games organized by foreign operators are taxable in Hungary if the individual is a resident in Hungary. (Winnings on Szerencsejáték games are already net amounts and no further taxes are to be paid.)
Based on the net profit (income minus the cost of the bet), any individual should determine in advance his income and pay the tax no later than the 12th day of the month following the quarter when the winning occurred. Also, a 27% health contribution is to be paid. Overall, after every HUF 100 of winning, HUF 43 is to be paid in tax and contribution according to the current law. No wonder the willingness to pay is very low amongst players.