All bets are placed, no more bets. The government takes up arms against the gambling business. What is actually behind the "purge" of the gambling market?
And how much tax do casinos and bookmakers underpay to the state budget
The first months of 2023 were marked by a series of events related to gambling market players. It all started back in January with the exposure of a large-scale tax evasion scheme involving gambling market operators and banks. They used the mechanism of miscoding, i.e. changing the purpose of payments received from players. This allowed them to both receive and withdraw money to the card accounts of individuals, disguising the transactions, for example, as card-to-card transfers.
In early March, the fight against illegal gambling reached cryptocurrency exchanges operating in Ukraine. Members of trading platforms lost the ability to deposit funds into their trading accounts and withdraw funds from them directly. This was due to the fact that the NBU, in response to irregularities in gambling business payments, adopted Resolution No. 14, under which all transactions involving the exchange of fiat funds for cryptocurrency are high-risk. Therefore, banks immediately stopped servicing such transactions.
Read also: Cryptocurrencies go underground: NBU bans withdrawals from crypto wallets. Why is it a sign that the market is being prepared for strict regulation?
Another incident occurred on 10 March, when President Volodymyr Zelensky signed Decree No. 145/2023 imposing another package of sanctions against individuals and legal entities who are citizens/residents of russia or are otherwise related to it. Among others, Parimatch LLC, which accounts for about 50% of the Ukrainian sports and other events betting market, was also subject to sanctions. As a result, on 12 March, Parimatch announced the suspension of its operations and the blocking of its official website.
Mind examined how this "crusade" against the gambling business could end.
Is gambling legal in Ukraine or not? Gambling was legalised by the national legislation two and a half years ago. On 14 July 2020, the parliament passed Bill No. 2285-d on state regulation of the organisation and conduct of gambling, and after Zelensky signed it, it became Law No. 768-IX.
The initiators of the bill wrote in the explanatory note to it that direct losses to the state budget due to the ban on casinos, sweepstakes, etc. amount to about UAH 10 billion a year. The Antimonopoly Committee, analysing the situation with underground gambling in 2018, even mentioned a figure of UAH 30 billion. According to the agency, this was the turnover of the "shadow" gambling market.
How much tax does the gambling business pay now? The first year of the gambling business's existence "in law" demonstrated that expectations from its legalisation were too high. The sale of licences to market participants (casinos, slot machine halls, etc.) brought in UAH 1.34 billion instead of the planned UAH 7.4 billion. Taxes paid by gambling operators in 2021 amounted to UAH 204 million. This figure was announced by MP Yaroslav Zhelezniak from the Voice party.
If we analyse the report on the state budget execution in 2021 published by the State Treasury, the amount of income tax that casinos and others had to pay was cut out of this report. However, the Treasury report for January-October 2021 contained the figure of income tax paid by gambling organisers. However, it was only... UAH 4,800.
The report on the State Budget execution for 2021
Experts explained this situation by the fact that the parliament did not regulate the taxation of the gambling market. This refers to the draft law No. 2713-d, which was adopted in the first reading back in July 2021 and is still being finalised. However, this does not mean that the gambling business has been exempted from paying taxes. Until there is a separate law, taxation is carried out on a general basis – at the income tax rate of 18%.
Why did the situation with tax revenues worsen in 2022? In theory, we can discount the fact that Ukrainians clearly had no time for entertainment due to the war.
However, according to Yaroslav Zhelezniak, who is a member of the parliamentary Adhoc Inquest Committee for gambling fraud, the industry's turnover in 2022 was about UAH 180 billion. This is almost 36% of Ukraine's annual GDP. At the same time, the amount paid by the gambling business for licences was even less than in 2021 – UAH 1.16 billion, and the amount of taxes was UAH 730 million.
"That is, all taxes and fees paid amounted to 1% of the turnover," Zhelezniak states.
The gambling industry was favoured by the fact that in March 2022, the parliament passed Bill 7137-d (now Law 2120-IX), allowing business entities to switch to a special regime with a 2% turnover tax for the period of martial law. In January 2023, MPs "came to their senses" and cancelled this benefit specifically for the gambling business. However, many market participants managed to take advantage of a completely legal loophole to pay less taxes. According to Zhelezniak's estimates, UAH 60 million of the aforementioned UAH 730 million was paid by operators that switched to a special regime with a 2% tax.
However, the lifting of the preferential taxation regime did not solve the main problem – how to make gambling market participants pay taxes. In general, the Bureau of Economic Security (BES) estimates the amount of tax losses to the state budget due to gambling market evasion at UAH 2 billion per month. That's why MPs, together with law enforcement agencies (BES, SBU, etc.), started looking for the biggest tax evaders
If we go back to the aforementioned miscoding, according to the SBU, only one bank involved in this scheme was responsible for UAH 7-8 billion per month. And there were nine such banks. This money was then withdrawn to third-party accounts through various grey schemes, including for the payment of "envelope salaries", and was even involved in the illegal export of grain.
Why were Parimatch and other bookmakers sanctioned? Sanctions against Parimatch LLC became another episode in the history of the gambling business. Although the official wording that explains the imposition of such sanctions is the russian origin of the subject or its cooperation with the aggressor country.
And the new sanctions list does include companies registered in russia. These include SportBet, MatchBet, MVbet, Marathon and others. At the same time, Ukrainian bookmakers are also on the list. In addition to Parimatch, they include Pokermatch.UA, Pointlotto, and Your Betting Company.
The last three on the list did not have a betting licence (accepting bets from players), which may explain the sanctions imposed on them. At the same time, Parimatch had licences for both betting and online casino activities – the company received them in March 2021. Based on the bookmaker's data, since the beginning of 2023, the amount of taxes and licence fees actually paid by the company is UAH 485 million
Moreover, after 24 February 2022, Parimatch ceased its operations in russia. On 26 March 2022, the bookmaker announced on its official website that "...all legal and technical processes necessary for the final withdrawal of the Parimatch franchise from russia have been completed."
Furthermore, in August 2022, the Ministry of Education and Science of Ukraine and the Parimatch Foundation, a charity owned by the betting company, signed a memorandum of cooperation. However, after the introduction of sanctions, the Ministry of Education and Science announced that the agreement with the foundation would be terminated.
Parimatch management cannot explain the reasons for the sanctions. During a briefing on 11 March, the company's representatives said that Parimatch's operations in Ukraine had been completely suspended, and about UAH 250 million of player funds had been blocked on its accounts.
At the same time, Parimatch CEO Maksym Liashko promised that all the money would be returned, it was only a matter of time. He clarified that the company intends to seek the lifting of sanctions and once again denied any connection with the russian market. But, according to Liashko, litigation is a last resort and there is more hope for such an option as amending the sanctions list. "It is known that the NSDC lists can change," the head of the company explained.
What will happen to the gambling market next? In the words of Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, the motivation of all the above events is to make the gambling market work in the legal field and stop tax evasion schemes.
"Everything is simple. We will make the gambling market pay taxes in accordance with the current tax law. In addition, the state will recover the identified underpayment to the budget," Hetmantsev told Mind. By the way, after the disclosure of the misdirection scheme, the amount of taxes paid by the gambling business increased sharply and in January 2023 amounted to almost UAH 200 million.
Hetmantsev also warned that a number of sanctions against the gambling market representatives have not yet been exhausted. "There are a number of companies that connected to russia, by some strange coincidence, were not included in the list. We at the Adhoc Inquest Committee are closely monitoring what is happening, and we will not allow those people who initiate sanctions lists to free the market from some fraudsters in favour of others," commented the head of the Tax Committee.
We can expect further tightening of the legislative and regulatory framework for the gambling business. For example, the NBU has already clarified the requirements for acquirers (banks and non-bank financial institutions) when conducting payment transactions. They are set out in Resolution No. 21 of 10 March 2023.
Briefly, еhe NBU explicitly states that this is necessary to prevent the real purpose of the payment from being concealed and to disguise the replenishment of gambling accounts of gambling organisers as ordinary money transfers.
Also, the draft law No. 2713-d should pass the second reading so that the nuances of gambling business taxation are finally settled. However, the timeframe when the parliament can consider the draft law is still unknown. According to Hetmantsev, at the moment, "...there is no required number of votes."
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