Ivan Kurochkin: Breaking down Sweden’s tax increase proposal

Ivan Kurochkin: Breaking down Sweden’s tax increase proposal

Ivan Kurochkin: Breaking down Sweden's tax increase proposal
Sweden proposed a gambling tax increase. Sweden’s government (Regeringen) has announced proposals to increase the gambling tax rate in the country from 18% to 22% of gross gaming revenue (GGR). The Swedish gambling market received new regulations in 2019. Today, the Swedish government is satisfied with the results of legalization and considers the channelization to be high, and the market is mature enough to talk about increasing taxes. Ivan Kurochkin, Partner and Head of Eastern Europe Desk at 4H Agency, comments on the situation: “At 4H Agency, we often deal with regulatory changes in various countries. Unfortunately, in many cases, such changes often have a negative impact on operators, ultimately failing to yield the expected results for the government.” The primary goal of anyregulation is to ensure that the entire gambling market operates within the bounds of the law. This is a challenging objective, particularly when it comes to the online segment. It is no secret that online operators have a wide array of tools for conducting offshore operations, which the government cannot effectively combat through coercive measures like financial restrictions and website blocking. Drawing from our experience, we believe that during the process of legalizing and reforming legislation, the government should set two key objectives: Implement measures that significantly impede offshore operations in practical terms; Enhance the profitability of legal operations for gambling operators and make them more appealing to players, all the while maintaining comprehensive control over the industry as a whole. Over time, we have codified tools that enable states to achieve these goals. These tools can be conditionally divided into two groups: active measures that make offshore operations more challenging, and passive measures that enhance the appeal of legal operations within the country. Active tools to combat offshore operations include: Domain blocking; Financial blocking; Bad Actor clause and similar approaches; Administrative and criminal liability in relation to offshore operators and representatives of the management of such companies; Public activity of the regulator and active informing of the public about changes in legislation and the dangers of offshore operations. Passive instruments include the following: Legalization of gambling along the entire perimeter of verticals (online casinos, online poker, online bookmaker); Reasonable from an economic point of view, balanced and effective regulation of the industry, meeting modern global trends in gambling legislation; High-quality use of active tools to combat offshore operations to increase the attractiveness of the market for legal operators who will not have to compete with offshore operators. Global practice demonstrates that the most significant impact in combating offshore operations is achieved through the utilization of passive instruments. In this scenario, the share of the legal supply of gaming products on the market increases, consequently reducing the presence of offshore operators and the overall appeal of illegal operations within the market. It’s crucial to emphasize that favorable results can only be attained when active and passive tools are used simultaneously. If only one of these categories of instruments is used, the regulatory efforts will remain incomplete and, consequently, prove ineffective in the fight against offshore companies. Sweden consistently takes this approach, which allows them to increase tax rates gradually. The example of Sweden has pleasantly surprised us. Unlike some jurisdictions that want to establish high budget contributions from the gambling sector immediately, whether through taxes, licensing fees, or contributions for sports development, and subsequently experience a surge in illegal operations, the Swedish government has chosen an evolutionary approach: In 2019, “rules of the game” were established for operators. In 2023, measures to combat illegal operations were taken. And only now the government is thinking about increasing the tax from July 2024. The increase is not substantial, but relatively modest at 5%. This enables operators who initiated their activities post-legalization to continue operating within the legal framework. Nevertheless, this adjustment should not come as a shock to operators since the anticipated effective date for these changes is mid-2024. This transitional period affords operators already active in Sweden the opportunity to adapt to forthcoming changes, while also allowing companies planning to establish a presence in Sweden the chance to revise or reconsider their plans. Why do we consider this approach to be the best, despite it taking quite a long time? For operators, any new legal expansion entails, first of all, significant costs across various areas, including marketing, localization, licensing, and taxes, etc. Unfortunately, these expenses are often overlooked during the legislative development process. Sweden’s approach reflects an understanding of operator economics and allows operators to enter the market first, gaining stability before facing increased regulatory burdens. And only then, based on analytical data about channelization, quantitative and qualitative indicators of the market, the government decides to change the regulatory landscape in order to strike a balance between the interests of the state, players, and operators. It is this evolutionary approach that aims to foster a synergistic development of regulatory tools and operators. In the long term, this approach yields more beneficial outcomes for all participants involved: The state receives more income from the legal sector and can control the activities of operators since the percentage of legal operations is much higher than illegal ones; Players gain access to high-quality gambling products, as legal operators adhere to the rules established by the state; Operators can exist within the legal framework, as the state considers their business model and allows the opportunity to generate profits. We hope that Sweden will continue to adhere to the chosen approach, maintaining its reputation as a predicted jurisdiction. This will help it remain appealing to TOP gambling operators who can introduce advanced developments in the field: responsible gaming, high-quality gambling products, while remaining a reliable source of government revenue. We are always pleased when governments endorse a synergistic coexistence approach. We will closely monitor developments in the Swedish market and keep our audience informed”. Image credit: Casino Guru News

03 NOV 2023

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