Gambling Business Analytics in Ukraine Before the Ban in 2009

Gambling Business Analytics in Ukraine Before the Ban in 2009
09.09.2019

Before the law “About the ban of the gambling business in Ukraine” came into effect, the market was growing very rapidly in the country. From 2005 to 2008, its total volume increased by almost three times, from €246 million to €967 million. What was happening in the Ukrainian gambling market during this period and what is the situation today?

Ten years have passed from the moment of imposition of the prohibition on the gambling market in Ukraine. The law was adopted quickly: the process was taking place straight after the fire in the slots machine parlor in Dnipro when people died, so the initiative was supported by most of the deputies. Before that, 10,000 gambling facilities had been operating in the country, providing workplaces for tens of thousands people.

According to the analytics of the German company GIZ, the revenue of the Ukrainian gambling market fell into the following categories before the ban:

UGW: Gambling Business Analytics in Ukraine Before the Ban in 2009 1

Besides, the gambling market brought benefits to the state in the form of filling the budget with gambling permit fees.

  • €79 million –in 2006;
  • €85 million – in 2007;
  • €88 million – in 2008;
  • €10 million – in 2009.

With the introduction of the tough law that totally banned gambling activity, legal gambling market was frozen in the country. Owners of gambling facilities faced the fine of 8,000 subsistence minimums and confiscation of equipment. However, tens of thousands slot machines kept working having shifted to the semi legal mode. Shadowing led to the situation when the state lost a decent part of budget refilling, and thousands of people lost their business and work.

The market after the ban in 2009

During the next five years after the ban, many gambling companies reoriented toward the lottery market that continued to function. Most of the companies greatly resembled slot machines parlors or sports betting shops. According to the data of the Ukrainian Ministry of Finance, 80% of bets of all lotteries accounted for the shadow sector in 2013.

In percentage terms, they fell into:

UGW: Gambling Business Analytics in Ukraine Before the Ban in 2009 2

At the same time, the legal lottery market became unprofitable to run a business due to high taxes. To compare, in 2014, the total revenue was 12.5 billion hryvnias, and tax payments to the Ukrainian budget were just 64 million hryvnias. The process of lottery license acquisition was not thoroughly regulated by the Ministry of Finance and this led to market monopolization, corruption growth, and greater shadowing of the business.

The state monopolized the lottery market with the adoption of the law “About state lotteries in Ukraine” (2012). Since that time, private businessmen have not been allowed to conduct lotteries, and a state license has been available for the price set by the Ukrainian Cabinet of Ministries.

The former Minister of Finance Oleksandr Danyliuk noted that due to the semi legal nature of the market, the state budget was losing 5 billion hryvnias every year. Such a situation signalizes that the state has to reform the gambling industry.

Gambling business regulation in EU countries

According to official data of the European commission, the global revenue of the gambling market reached €275 billion in 2010, €80 billion (29%) from that sum accounts for the European countries. In 2015, the EU gambling market grew to €91.6 billion with 14.2 of the revenue belonging to the online sector, and 85.8% – to the land-based sector. By the sectors of the EU gambling market, the gross revenue distributes as follows: betting – 33%, poker and casino – 22% and 21%, state lottery – just 11% of the market. Different European countries have different legislation norms that specify the following payments to the state apart from taxes:

  • VAT – 20-23%;
  • profit – 19-33%;
  • tax on wins.

In countries that have legalized and well-regulated gambling industry, the state receives a significant tax benefit. If the gambling business operates in the shadow sector, its potential advantages are totally lost. It can be illustrated by the Georgian market, where tax payments of slot machines refilled the budget of Tbilisi with $11.9 million in the first six months this year.

Advantages of the gambling business legalization in Ukraine

The state can benefit from the legalization of the gambling business and from bringing functional companies from the shadow for a number of reasons:

  • increase in budget replenishment;
  • reduction of turnover in the shadow sector and of the corruption level;
  • a possibility to fight against gambling addiction officially and to promote responsible gambling;
  • new workplaces;
  • foreign capital attracted to the country.

Potential benefits are possible only in the case of right regulation of the gambling industry at the legislative level and adequate tax rates that will provide a possibility for development to not only monopoly companies but also the medium business.там, но и среднему бизнесу.

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