'Absolute horror' for independents as betting tax in Ireland is doubled

It was billed as a “caring Budget” by the minister for finance but the betting industry in Ireland and beyond was left reeling on Tuesday when Paschal Donohoe doubled the rate of betting tax from one per cent to two per cent.

An already embattled population of independent bookmakers is expected to be hit hardest by the increase, which is something Horse Racing Ireland had lobbied for unsuccessfully for a number of years.

Sharon Byrne, chairperson of the Irish Bookmakers Association, warned all of the independent shops in the country could close.

The rate was halved from two per cent in 2007, and bookmaking analyst Goodbody, Gaming & Leisure estimates that the increase could cost Paddy Power Betfair alone up to £20 million a year.

Donohoe, who placed an emphasis on health, housing and homelessness in what is the existing government's final Budget, also confirmed that the rate of commission levied on betting exchanges will increase from 15 per cent to 25 per cent.

The tax yield, which stood at €52m in 2017, is expected to double in 2020, when the first full year of the increased revenue is collected.

However, while it is unclear at this stage to what extent racing will benefit – with a portion of the increased yield expected to be ringfenced for addiction services to treat problem gamblers – HRI will see its 2019 funding increased.

The Horse and Greyhound Racing Fund has been allocated an additional €4m to bring it to €84m which, based on the existing 80-20 divide, will see HRI’s funding increase by €3.2m to €67.2m in 2019.

Byrne warned last week of up to 300 shop closures and job loses in the region of 1,500 if the rate was doubled.

Paddy Power, BoyleSports and Ladbrokes have around 650 retail shops in Ireland and there are a further 200 independents.

Speaking on Tuesday, Byrne said her reaction was one of “absolute horror” after her sector’s fears were realised.

“Over the last eight to ten years we have already lost 450 shops, all of which were independents, of which only 200 have survived, and they are now gone in one swipe of the pen,” she said.

“We had 1,365 shops in 2008. We were down to 850 and it had kind of stabilised this year. Now, the 200 independents that were able to survive have no hope. I’ve taken calls from them all morning – they are distraught. I'm calling an emergency meeting of the association for Friday morning to see what we can do.

“Fifteen minutes before the minister made the announcement he had just been talking about how important it was to save all the little jobs in the country and provide support to small companies, and then he wipes out these shops across the country.

“It will force punters to off-shore operators and black markets. Most of these towns only have one shop and they are going to be gone, so punters will either go online or to the black market.”

Outlining the economics of a doubling of the rate, which is levied on turnover rather than gross profits, she added: “It takes a big chunk out of the big companies’ profits and wipes out the little guys.

"After VAT, PRSI, PAYE, picture rights etc have been paid, they are left with a margin of about 0.75 per cent to 0.801 per cent, so a further one per cent on turnover just puts them into insolvency. I’d imagine we are looking at all of the independents closing and maybe 100 to 125 of the big multiples' shops.”

Byrne also warned that the move will impact negatively on Irish racing, as the value of media rights, which totals £39m from 2019, could be affected. “Irish racing’s deal with SIS depends on shop numbers,” she said.

“They were already under pressure because of the closures that are going to happen in the UK due to the reduction in FOBT stakes, so a further few hundred here in Ireland is also going to hit horseracing. That’s another unintended consequence. They were getting over €40m but that will be severely hit.”

Responding to Byrne's concerns, HRI chief executive Brian Kavanagh suggested there are other factors at play in relation to the closures.

“The tax rate has been the same for the last ten years but there has still been a reduction in the number of betting shops,” he said. “I think that has been a consequence of the competitive pressures the betting industry faces as opposed to anything to do with taxation or picture charges.

“The rate is a lower rate of tax than applies in other jurisdictions. Upwards of 85 per cent of turnover in the country is generated by three multinational companies, so that’s a feature of the market as well.”

Of the increase in the rate in the context of HRI’s future funding, Kavanagh said: “We’ve always made the point that the industry didn’t believe that the government should be writing a cheque for the shortfall. 

“In 2018, the tax yield was generating €52m, so there was a cheque from the central exchequer of €28m being written by the government. Obviously the rate increase would eliminate that and provide the basis for future funding discussions, but they are separate issues.

“The thing now is to get on and address the issues that are facing the industry."