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New gambling tax by the Romanian government hits online and offline operators’ profits

In a previous article, we have reviewed the details of all online gambling laws across the various countries of the European Union.

One of the countries that we made a special mention for is Romania. Indeed, this Balkan country implemented a nearly perfect piece of legislation and the transition to the new regime was executed perfectly. It was the result of a consultation that received feedback from all industry stakeholders while at the same complied fully with the directives coming from the European Commission. Indeed, the outcome seemed ideal and many remote operated applied for a license while at the same time decided to invest heavily in human resources and marketing.

What changes after the recent decision?

Two years after the gaming legislation passed the senate and became active, things seem to change a bit and actually to the worse. With a recent resolution, the Romanian government has announced a new round of increased taxation spread across various sectors of the country’s economy. And that the gambling sector will not be excluded from the new regime. The new tax arrangement, which will seek tax back payments from the beginning of 2018, is already seen as a severe threat from remote casinos and sports books that were looking ahead for yet another year of profit growth in the market. Revenues for both operators and the state itself have seen significant increases for the third consecutive year and that was off course welcomed by all parties.

Turnover tax added to existing casino tax in Romania

The changes in tax rates were initially announced in early December 2018 along with increases in tax rates of other sectors of the economy. For example, a tax will be introduced on all bank accounts balances (as a percentage of the total savings) while the telecommunications sector will be hit by an additional tax on turnover). The government plan was to introduce a flat turnover tax for the gaming sector that would sit on top of the existing GGR tax that remote companies pay. While this percentage of turnover tax was originally set at 5% (and would affect online casinos, online betting and online poker companies) the relevant tax for land based casinos was set at 3% of the turnover for all games that are offered on their premises. Fortunately however, towards the end of the year, the regulator decided to change the initial plan and settle with a – not insignificant – 2% on gaming turnover. The bad news for everyone (approximately 22 casinos and betting companies are licensed in the country at the moment) is that the new turnover tax will be imposed retrospectively and companies will have to pay the tax also for the entire year 2018. Something that will be a major blow to the profitability of companies like bwin, Netbet, bet365 and winmasters.

What was the situation until recently?

Tax collection from previous years seems to be a popular habit for Romanian governments. We should not forget that in 2015, when the first announcements for the transition to the current legislation were made, many companies applying for a license were asked to pay a 20% retroactive tax on gross profits for the years 2009-2015. We cannot overlook the fact that companies such as bet365, bwin and a few others made it to the Black List of the Romanian Ministry of Finance because they initially denied this arrangement and instead of a license, they were given a generous fine and a two year “Bad actor” penalty. As a result, when they finally decided to comply, they had to pay significant fines, while on the other hand they had to delay their operation in favour of other operators that made it to the market when it first opened, in the summer of 2015. Bwin, sportingbet and bet365 made their entrance into the market almost a year and a half later, only to find companies like Netbet dominating, with a significant market share advantage.

What does the increase in the Romanian market tax mean?

For now most companies prefer to just observe the recent developments and have avoided commenting. A rumour that wanted 888 casino and poker ready to withdraw from the Romanian market, has been denied. That would make it the first company that does not want to comply with the 2% turnover tax and prefer to leave rather than seeing its profits deteriorating. However 888 Holdings leaked that it is currently re-considering the execution of major events that it had planned in 2019 and would take place in land-based casinos around Romania. Out of the other big players in the market – the likes of Stoiximan (through betano), bwin, winmasters, bet365 and netbet – there have been no comment so far. But we can certainly assume that no one is happy with the new development that will make Romania less profitable for everyone.

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