Czech government warned on high online gambling taxes

The Czech government’s predilection for continual tax increases on both online and retail gambling companies could result in a movement to more tax-friendly climes, gambling companies warned this week.

The warnings followed the latest tax on Czech-based companies that run betting shops and online betting operations, implemented in January 2012 and justified by government as being required for the country to comply with European Union rules to reduce the Czech fiscal deficit to no more than 3 percent of gross domestic product next year from slightly higher than 3 percent last year.

Companies that take bets on sport events, political elections and similar propositions now pay a 20 percent tax on gross wins on top of a corporate income tax rate of 19 percent, the Wall Street Journal reports. The tax is nearly double that of Poland’s 12 percent, and almost four times that of Slovakia at 5.5 percent.

Michal Veprek, CFO of the Fortuna Entertainment group – the largest betting operator in Central Europe, said that his company paid over Euro 4 million in taxes in the first half of 2012, placing the company at a competitive disadvantage with foreign rivals in the Czech market who paid nothing.

Chairman Wilf Walsh said taxes seriously impacted a company’s finances, noting that although Fortuna posted a 15 percent annual increase in gross wins and a 10 percent annual increase in revenue from bets and lottery, net profit fell 35 percent on the year largely due to gambling tax.

He said that the company has established a Malta operation and is ready to switch to an offshore registration…not the company’s preferred option, but one that would lead to a lower tax bill and protect shareholder value while increasing the probable dividend pay-out.

“If the situation doesn’t improve by the next Annual General Meeting of shareholders, we propose [to move] operations to Malta,“ he said.

Fortuna also has a shell company in Hungary as an offshore platform closer to home, the CFO added.

“In case taxation worsens, we have a safe haven where to move,” he said.

Sales of diesel fuel in the country are already declining due to tax increases that have forced users to buy cheaper fuel in neighbouring countries, but the government remains adamant that more taxation – including a one percent rise in VAT and higher income tax on upper bracket earners – is necessary.

Economists have warned that the increases are likely to prove counter-productive in both the short and long run.