ut the Treasury confirmed it was considering whether to shift to a gross profits tax system, a tax regime used in other parts of the leisure industry, including bingo, casinos, football pools and betting shops. Under GPT, taxation would be determined on gross profits - the total amount lottery players stake on games minus the amount they win in prizes.
The GPT regime is backed by a lottery taxation steering group led by PwC and including Camelot, the lottery operator, Revenue & Customs, the culture, media and sport department, and the National Lottery Commission.
The PwC report says the current taxation regime gives no incentive to the operator to increase sales because it does not maximize returns to good causes. The reason is that under the current regime any increase in sales drives up payments to the Treasury, which in turn reduces the amount to good causes.
Under a GPT system, however, both tax and the return to good causes are related to gross profits. According to PwC, this means that when the lottery operator increases prizes, it can increase sales, returns to good causes and tax.
The PwC report concludes that within four years, a GPT system would increase good causes contributions by an average of us$ 89 million a year, and increase Treasury revenues by us$ 31.5 million a year.
One government insider said although the Treasury had considered GPT for the lottery before and rejected it, it was approaching the review of lottery taxation with an open mind.
Don Foster MP, Liberal Democrat spokesman on the lottery, said: "The Treasury used to be totally opposed but now they are agnostic. If we moved to a GPT system, you would get significant additional sums to good causes and to the Treasury as well."
But the Treasury will need to be satisfied that its absolute returns would rise because of the anticipated increase in sales.
Camelot said: "The deregulated gambling and gaming sectors already benefit from this more flexible and competitive system - this is the single most important fiscal reform to enable the lottery to continue to maximize returns to the good causes."