The high level of restrictiveness of Polish regulations regarding the operation of online casinos is one of the reasons for the popularity of the online gray zone, according to the EY report on the gray market on the online gambling market in Poland, commissioned by the Play Legally Association.
EY prepared a report in which it estimated the size of the shadow economy in the online gambling sector. It shows that in 2020 the turnover of illegal operators amounted to as much as 12.6 billion, which accounted for 46.7% of the entire online market. In this situation – apart from the high fiscal burden on operators licensed by the Minister of Finance – there is a high level of restrictiveness of Polish regulations on the operation of online casinos. It is one of the highest in the European Union.
A key factor in the development of activities in the shadow economy on the online gambling market are regulations that prevent legal entities from providing this type of service. In EU countries with higher market entry barriers, the share of illegal operators in the online online casino market is also higher on average. EY’s econometric analysis confirmed that increasing barriers to entry into the online gambling market led to a decline in net revenues (sales revenues net of winnings) of legal operators operating in this market, the report said.
In Poland, some gambling is completely banned, e.g. online poker tournaments, or is subject to state monopoly, e.g. online casino. Thus, an important competitive advantage of operators operating in the shadow economy is enabling consumers to participate in games that are not available on the market official, because licensed operators cannot provide them.
In terms of net revenues, defined as the difference between the operators’ revenues from the sale of gambling games and the winnings paid out, EY estimated the shadow economy at PLN 1.1 billion, which corresponded to 34.5% of the value of net revenues in the entire online gambling market in Poland in 2020.
The activities of illegal operators translated into total losses for the state budget due to the tax on games in the amount of over PLN 2 billion in the period 2016-2020. One of the reasons is the way of taxing licensed operators. The EY report shows that the average effective tax rate in Poland is in the years 2010-2019 it amounted to about 33%, which is one of the highest values among EU countries.
The relationship between the effective tax rate on gambling and the value of net revenues of legal gambling operators shows that in countries with a higher effective tax rate, the revenues of licensed entities are lower on average, it was also found.
“The results of the econometric model estimated by EY show that an increase in the effective tax rate on the gambling market by 1 percentage point leads to a decrease in the value of net revenues (sales revenues after deduction of winnings) of legal operators on the online market by 1.24%. The EY report leaves no illusions that the restrictive provisions of the Polish gambling act increase the attractiveness of the offer of illegal operators. In particular, this applies to state monopolization in selected segments of the online gambling market. in the form of lost revenues to the state budget due to tax on games “- said Katarzyna Mikołajczyk, president of the Play Legally Association.
In 2016, the gray area of online gambling accounted for 76.5% of the market turnover. Over the following years, the percentage share of the shadow economy decreased to reach the level of 46.7% in 2020. In nominal terms, the shadow economy has been growing continuously since 2016, when the turnover amounted to PLN 3.5 billion, and in 2020 as much as PLN 12.6 billion. The above upward trend was not changed even by the amendment to the UGH, which entered into force in 2017. This means that the decline in the share of the shadow economy in the total value of the gambling market is not due to the restriction of activities carried out by illegal entities, but to the dynamic development of the legal market, which in recent years has been contributed by, inter alia, favorable changes in Polish law. However, they did not stop the shadow economy from growing at the same time, the report said.
“Our econometric model shows that in countries with less restrictive regulations, legal online gambling operators earn higher net revenues than in countries with more restrictive regulations. The results of our analysis also confirm that both legal restrictions affecting access to legally provided services and and the amount of the effective tax rate are important determinants of the size of the shadow economy in the online segment of the gambling industry – added the president of the Association.
Source: EY and ISBnews
