Cyprus risks failure of newly regulated market

The RGA commissioned KPMG Cyprus to test the effectiveness of the Cypriot government’s proposal to impose 3% turnover tax on online betting in order to raise revenue and ensure the effective implementation of social responsibility policies.

KPMG found that a gross profits tax is a better way of taxing gambling than a turnover tax because:

• GPT will encourage more operators to obtain a licence and thus maximise the size of the locally regulated market; In turn, this will generate higher tax revenues for the government;

• It will encourage more responsible operators to obtain a licence, a result of which being that more Cypriot customers will be betting within the regulated market and will be subject to the government's social responsibility policies;

• At a single rate, GPT can be applied to a wide variety of gambling activities with different payout ratios without distorting competition between them;

• Gambling activities with very high payout ratios (such as casinos and online poker) can only be effectively taxed by GPT, thus removing a substantial potential source of future tax revenue if a TT is introduced.

Although the Cypriot government does not intend to regulate these products at present, in the light of the proposed licensing of land-based casinos, the report covers their impact on tax revenue and the size of the locally licensed market.

Clive Hawkswood, CEO of the Remote Gambling Association, said: “The RGA believes that the partial opening of the Cypriot online gambling market is a welcome step. However, by proposing a turnover tax regime the government is creating a huge and uncompetitive financial burden for potential licensees. There is no doubt that implementation of current proposals will see the newly regulated market fail, which will be to the detriment of the Cypriot state and consumers.”