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Would legalizing gambling provide money to Ukrainian budget?

Author : Anna Peshkova

Source : 112 Ukraine

This year, law enforcement officers confiscated equipment worth 4,6 million USD from the informal gambling sector, but its representatives are actively purchasing them for future use
18:10, 30 July 2020

gambling
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This year, law enforcement officers confiscated equipment worth 4,6 million USD from the "shadow" gambling sector, but its representatives are actively purchasing them for future use. Business expectations are fueled by the adopted law on the legalization of gambling, with the signing of which, however, there is a hitch due to two mutually exclusive amendments.

Despite the fact that the gambling market will not start until at least autumn, large financial proceeds from the legalization of "gambling" were prescribed in the 2020 state budget – 163 million USD. Legislators in a hurry adopted an initiative that mixed casinos, lotteries, slot machines, betting business.

Experts suggest that the budget can earn much less than the expected amount from the legalization of gambling. In this article you would find the reasons for such forecasts, and who can actually make money on the market.

Related: What you need to know about legalization of gambling in Ukraine

Reason 1. Expensive licenses

Let's say you want to open your own casino. In addition to the fact that you must not have a criminal record in the field of economic activity and residence in the Russian Federation, a legal entity company must have an authorized capital of more than 1,1 million USD. Such requirements are spelled out in the law.

If you are going to open a casino in about 2.5 years, the license will cost a million dollars a year (2 million for the capital). If you start earlier, you will have to pay from 3 to 6 million for one permit alone. The MPs decided: until online monitoring is launched and, in fact, it will be impossible to track winnings in the casino, it is worth filling the budget with at least increased rates for licenses.

In neighboring Poland, a license costs 330,000 dollars - 9 times cheaper than in Ukraine. A license for Polish bookmakers costs 21,000 dollars, while in Ukraine the rates after launch will be 600,000. Even after the expiration of the transitional period, permits in Ukraine will be among the most expensive in the world.

Hence - the first "bell" why there may not be a large-scale launch of the "game". Olena Mochalova, head of the public organization "Support for the Legalization of the Gambling Business in Ukraine", suggests that part of the business will work semi-legally due to the high cost of licenses. People who receive licenses will simultaneously open illegal institutions that bring them profit.

Related: We need a strategy: How can Ukraine legalize gambling business?

Large royalties are a guarantee that one-day companies that violate the law, thereby discrediting all other market participants, will not gain strength in the market. But besides these payments, there are also licenses for equipment. A document for a gambling table will cost 30,000 dollars, for one slot machine - more than a thousand dollars.

The investment in the casino is decent. The law does not provide for the possibility of renting or leasing equipment. Each roulette costs about $ 3,800, a new type of slot machine - 25,000 euros. For a large establishment, at least 300 of them are needed. At the same time, the "shelf life" of the equipment is no more than 2-3 years. In addition, you also need to pay exorbitant amounts for renting premises.

Therefore, most likely, economically weaker market participants will want to save on licenses. Most likely, the so-called "franchise" will be distributed. For the use of the license of another company, "shadow companies" previously paid about a quarter of the "black" profit, that is, 1500 USD per month. In addition, they also decided the issue with the police.

Reason 2. High taxes and compensation

To track transactions, a cash register equipment should be installed in the casino. But, until the online monitoring system is introduced, taxation of business gross income (rates minus winnings), in fact, is in the "blind zone". During the 2.5 year transition period, it will be impossible to check how much people are losing in casinos and online poker.

Related: Police stop work of 15 gambling rooms on reports of people, - Prime Minister

Economic expert Oleg Pendzin says that representatives of the sphere will not be able to report on the "minus" all this time - they must notify at least the minimum profit. However, there are big doubts that the budget from these amounts and the payment of licenses will indeed be substantially filled. What will happen to the reputation of a country that has launched such a semi-legal business is generally a separate question.

A separate law is needed, by which the MPs would amend the Tax Code, otherwise it will be impossible to collect money from business. The same law will determine what the rates will be. Legislators are balancing on this issue like tightrope walkers. Too low taxes will not fill the budget, and too high will make it more profitable to pay for kickbacks.

There are several options for the corresponding bill # 2713. The latter stipulates that 10% will pay for games on the Internet and lotteries, and owners of casinos and machines - 12.5%. The most favorable conditions for bookmakers are only 5%. Probably, they made concessions for this area, since blocking illegal sites does not help, and it is extremely difficult to track transactions on online wallets. Among other things, the business also needs to pay an income tax of 18%.

Related: Illegal gambling suppressed in Zaporizhya region

The world uses a variety of approaches. Usually, when legalization starts, the rates are low - about 5-7%. In Hungary, the tax is 15%, but there is no need to purchase a license at all. And the UK, Italy, Georgia do not tax gross gambling profit at all. So Ukraine with expensive licenses and high taxes is far from the most attractive country for running a gambling business.

However, the bill has not even been adopted in the first reading. Most likely, it will be adopted at an urgent session of the Verkhovna Rada, in the first or second convocation. Serious work on the initiative will begin in early September. Taxes may turn out to be lower when our legislators are consulted by people who have already been involved in the gambling business in other countries.

However, experts do not believe that even with lower rates it will really be possible to fill the budget since in Ukraine they traditionally try not to pay taxes. In addition, even after the launch of online monitoring, it will be impossible to fully control the sphere.

“We will definitely not be able to whitewash this business. Even the most powerful establishments in the world suffer from the fact that they cannot control the turnover. At the very least, the croupier's tips remain in the shadow,” Pendzin emphasizes.

In addition to high licensing and tax players, other provisions of the new law are also weakly motivated to work in white. For example, if you do not keep track and admit to the game a person from the register of gambling addicts, you will need to compensate him for the lost funds tenfold.

Most likely, part of the business will take a wait and see attitude.

Related: 911 illegal gambling establishments terminated in Ukraine

Reason 3. Low solvency of Ukrainians

Usually, large wealthy cities make money on the legalization of gambling: Shanghai, Monaco, Monte Carlo. Players there can afford to lose a million in an evening. In Ukraine, effective demand is extremely low. It is hard to count on the influx of foreigners into the country who want to bet on money. In Ukraine, conditions are not the best for tourism, and the service sector is "lame," says Oleg Pendzin.

"I very much doubt that by legalizing this business, we will be able to attract rich foreigners who will play here. This is the legalization of business for the domestic market. Rich people go to other places to play, let's be honest," he emphasizes.

Speaking about the depressed regions of the country, Russian experience shows that there is no high demand for trips to disadvantaged zones on the part of solvent foreigners. Analysts in the gambling industry suggest that foreigners can only be attracted by the absence of an online monitoring module, thanks to which rich people will launder money, reporting that they earned it in a casino in Ukraine.

Experts do not believe that gambling legalization will lead to the development of the hotel business since it is usually launched by the tourism and business industry, and not by the desire to lose money. Taking into account the strict conditions in the form of taxes, licenses, compensations, for hotels the presence of a casino will be just a status thing. They may not chase profit, but simply buy a license for wealthy clients as a status.

Related: Committee suggests parliament to back draft on gambling legalization

Reason 4. Protection racketeering

The law stipulates the possibility of not paying for licenses for ten years if you build a five-star hotel from scratch. For the budget, such a norm is extremely positive, because it will lead to the creation of additional jobs. Several investors have already announced plans to build new hotels in the capital. However, everything can run up against the lack of legal regulation in the country.

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Penalties for the "shadow" business have also been written out. For admission to the game of those who are prohibited from playing - a fine of more than 72,500 USD. For running a gambling business without a license - a fine ranging from 6,000 to 25,000 USD. In the United States, by comparison, the fine is $ 100,000.

However, high fines and even substantial prison terms are not always a guarantee of filling the budget and the fear of violators of a crime. The Ukrainian law enforcement system already today offers advantageous "individual" options, despite the fact that the law stipulates a punishment in the form of imprisonment from six to eight years. Olena Mochalova, for example, shares information that the rates of "protection" of business by law enforcement officers have grown 2.5 times.

Will an investor come to a market where, in addition to sky-high license rates, there is a "shadow" scheme? The model has been operating since 2012 and is in great demand. Restaurant visitors are invited to play on tablets with other customers over the network. The new law does not regulate such activity in any way. There is no will of law enforcement agencies to initiate criminal cases against "entrepreneurs", which are usually in a 50% share, or in a fixed monthly payment for protection.

Related: Parliament supports draft law on gambling legalization

Before the implementation of the law, it was necessary to put in order the law enforcement system. Due to all these factors, experts do not believe that sports and culture will receive sufficient funds from the budget from gambling. The very idea of ​​regulating the sphere of gambling is positive. But it is not worth building castles in the air that it will become a source of significant income for the treasury. And there are prerequisites to believe that legislators understand this.

The author of the initiative, MP from the Servant of the People party Oleh Marusyak plans to profit from 20 casinos, 2,000 bookmaker's points, and the construction of new gambling establishments. According to Mochalova, there are more than 36 casinos in the Kyiv region. The bookmaker's points are about 5 times more than the author of the bill indicates. Perhaps the author is not sufficiently privy to the details of the Ukrainian underground business. Or perhaps the estimates were underestimated precisely because of the understanding of all the slippery moments in the law voiced above.

Who will actually profit from legalization?

According to lawyer Rostyslav Kravets, the meaning of the law is not in filling the treasury.

"Legalization is lobbied not to bring money to the budget, but to create a manual governing body that will unblock the flows. Given the number of gaps in the law, it is aimed at legalizing criminal proceeds, and not at revenues to the budget from gambling," says Kravets.

It is about a specially created Authorized Body, the Gambling Commission. This commission will decide to whom to issue licenses (their number is limited). This even applies to lotteries that are not considered gambling.

"And again, it is written that three lottery operators can operate. Not seven of nine, but for some reason only three. Probably because we have only three of them. It looks like someone's wish. If we want to replenish the state budget, then the lottery is the least toxic in this case and the most socially attractive. Let people buy licenses, and the market regulates itself," says Olena Mochalova.

Related: Gamblers over 21 years of age, online monitoring: Parliament legalized gambling in Ukraine

The authorized body will monitor all financial transactions on the market, and will also create an inspection to control gambling establishments. It will conduct inspections, according to the results of which it will be possible to deprive operators of licenses. It is unclear how exactly they will pass, what may be the reasons for them. The mechanism of such control is not spelled out.

Experts suggest that the law will also be beneficial to those who want to launder illegal income.

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