Online Gambling Industry & Taxes: 8 Important Questions Answered

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The online gambling industry keeps growing every year, as many casinos welcome offshore players to their platform and stock their game libraries with more exciting titles. 

Suppose you take a look at the new online casinos South Africa 2021. In that case, you will agree that online casino development is on the rise, and the industry is rapidly growing in monetary worth. For this reason, governments have begun to levy taxes on these online casinos, as it is well-established that they are making a lot of money.

As an operator or investor, you may begin to wonder if online casinos make the kind of money governments assume they make and the amount of taxes they are expected to pay.

That being said, I’ll be using this article to answer eight important questions operators, investors, and punters may have regarding the online gambling industry taxation. 

Question 1: Are online casinos taxed?

The first and most obvious question regarding online casinos taxation is whether they are being taxed at all.

Yes, online casinos are taxed. This is because they are businesses, just like every other taxable establishment in a country.

In Ghana, for example, online casinos have to pay 17.5% on gaming profit and licensing fees (one-off or annual).

Question 2: How do online casinos make money?

Before any business can pay tax, they need to make money first. So how do online casinos make money?

It’s really simple – online casinos make money every time players lose a bet. And believe it when I say that players lose a lot!

This is due to “the house edge”, which is the slight 1% to 5% advantage the casino has over the player. 

Of course, there are instances when online casinos have to pay out big winnings occasionally. However, it is less frequent compared to the huge amount of money they make on player losses.

The government is aware of this ongoing, and that is why they levy taxes on online casino operators.

Question 3: How much do online casinos make?

Now that you know how online casinos make their money, the next question would be: how much do they make?

Although it is impossible to determine the profit every online casino in the world makes, we can use the industry’s estimated value as a whole to have a fair idea.

According to a 2019 report, the global online casino industry is worth about $53.7 billion, and it is likely to grow at a CAGR of 11.5% every year until 2027. This means that by that time, the industry will be worth a staggering $100 billion!

This is a profitable industry that has shown no signs of slowing down. The government knows about this ongoing, which is why they clamor for casino operators to pay taxes in the countries where they operate.

Question 4: Who regulates online casinos?

Governments only levy taxes on legitimate businesses, and this includes online casinos.

So how can an online casino with no physical address be deemed legitimate? The answer to this lies in the gambling authorities that regulate the activities of these online casinos.

For example, the United Kingdom Gaming Commission (UKGC) regulates, monitors, and controls the activities of online casinos in the United Kingdom and some other countries.

Another good example of a gambling regulatory body is the Ghana Gaming Commission (GGC), which does the same to online casinos operating in Ghana.

Question 5: What costs do online casinos pay?

Before an online casino can declare a profit, they must first consider the other costs of running their business. Without taking expenses into account, they could be at risk of running at a loss. 

It is also worth mentioning that many governments tax businesses on their profits, and this is why taking expenses into account is important, as far as paying tax is concerned.

Below are some of the major costs online casinos have to pay.

Hosting fees: New online casinos need a domain name to operate on the web, as well as a server to host. These cost a lot of money, as they prefer to be hosted by a super-fast server to ensure that their websites operate smoothly.

This is vital for casinos that offer real-time play.

License fee: Online casinos are required to be licensed in any country they choose to operate. If they don’t, then they will face legal troubles in that particular country.

Gambling commissions charge a fee for licenses, and these could be one-off fees or annual fees. 

Software license fees: If you think online casinos get their games for free, then you are wrong. They usually pay a licensing fee to the developers of the games to include them in their libraries.

Other online casino costs include the marketing budget, bonuses, and staff salaries. 

When all these expenses are deducted from their revenue, the operators will determine their net profit and pay tax accordingly. 

Question 6: Are gamblers taxed on their winnings?

Winnings are taxed in some countries. The United States, for example, demands that gamblers report all their winnings on their tax return. Gambling winnings are also taxed in Ghana but under the guise of VAT.

The same law applies to Nigeria and other African countries, where the Federal Internal Revenue Service considers all gambling winnings as taxable income.

Failure to pay taxes on winnings is also considered tax evasion.

Question 7: What is the tax rate on gambling winnings?

In some countries, governments tax as much as 24% on online casino winnings.

These taxes apply to those who win in brick and mortar casinos and lottery winners.

Question 8: What happens when online casinos evade tax?

Tax evasion is a serious crime in many countries, and online casinos are not exempted from being prosecuted if they falter. If an operator fails to pay tax and is caught, they will face serious legal sanctions from the gaming authority and the government.

The punishments could be anything from seizing the operator’s gaming license, or the government could suspend their activities.

Conclusion

The growing popularity of online casinos has prompted governments to demand that they pay taxes. 

One of such instances is the recent call by Ghanaian president Nana Addo Dankwa Akufo-Addo, for all citizens and businesses to pay their taxes regularly, including online casinos.

I hope this article has answered the questions you have regarding the online casino industry and taxes.

Thanks for reading!

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