Against the wishes of high street betting shops, U.K.-based betting exchanges won't be subject to a tax on all of their bets. Nor will punters be forced to obtain bookmaker's licenses for betting against teams and individuals.
In what might be the biggest sign yet that Betfair.com and other betting exchanges are a force to be reckoned with, officials with the Customs and Excise office in Britain announced Wednesday its budget for 2003. Included in the budget is a new tax rate for betting exchanges--an increase of the gross profit tax from 10 percent to 15 percent.
A group of British bookmakers, including William Hill and Ladbrokes, were encouraging the Treasury to tax Betfair's customers on each bet, based on the argument that the bettors are essentially acting as bookmakers by laying odds.
The high street bookmakers argued that unlicensed bookmakers are using the site to avoid paying a tax and suggested that most of Betfair's racing business comes from commercial bookmakers who see the site as an easy way for them to balance their books.
Betfair's communications director, Mark Davies, said the government's decision to tax the company on its gross profits is, by far, the company's biggest victory ever.
"It is a complete vindication of our position," he said. "We have argued that this is the right way to do it from the word go."
During their lobbying efforts, the traditional bookmakers said enabling punters to lay bets without being subject to a bookmaking tax gives Betfair and other exchanges an unfair advantage.
Davies, however, contests that punters could bet on teams to lose at William Hill or Ladbrokes too. But with betting exchanges, he said, they get a much more competitive price because they are betting against other bettors.
Tim Ryan, a member of the Australian Bookmakers Association and an outspoken opponent of Betfair's recent rise in Australia, questioned the effectiveness of England's new policy.
"This will completely thwart the Levy Board's approach, and for that matter the BHB's (British Horseracing Board) data license, to attempt to collect fees on users' non-aggregated bet-initiated profits in an exchange," he said.
Ryan said that if Australian regulators set up a tax structure for betting exchanges, they won't take the same approach.
"The Australian Racing Board's only hope at avoiding the cesspit of exchange transactions is to ensure a fee to racing is based on turnover, that is, the punter's stakes--be they for or against a runner," he said.
The new tax plan will take effect June 1, 2003.
Effective in September 2003, bookmakers, who in calculating their net stake receipts, and pool promoters, who in calculating their net pool betting receipts, claim a loss over an accounting period will be able to carry forward that loss to future periods and offset the amount against future gross profits. Also, the duty exemption for on-course bets will now only apply to those made at horse and dog tracks.