Photo: © 2020 Lorraine Olivia Hamberger
SEO Title: National to Halt "Wild West" Behavior of NZ Online Casinos
Meta Description: Coalition talks about a new gambling tax has even top online casinos in NZ worried about the future, specifically in regards to offshore gambling.
Coalition talks continue in NZ. Will the leading National Party continue its plan to tax offshore online gambling?
Coined as their “Back Pocket Boost”, New Zealand’s National Party has big plans for providing tax relief for everyday Kiwis. But we all know the funding has to come from somewhere; reducing tax in one area surely means increasing taxes and levies for other sectors.
NZ online casinos operating offshore will take the hit along with three other measures, including a foreign buyer tax on multi-million dollar houses, a new user-pays levy for immigrant visas, and ending the commercial building depreciation tax break.
But before we get ahead of ourselves as to what that all means, it’s important to remember that this big plan ends with one big question mark. More than one month after the New Zealand General Election, coalition government talks are still in progress.
New Zealand’s mixed-member proportional (MMP) system has incited prolonged government negotiation periods since switching over to it in 1996, with the longest coalition negotiation lasting two months that same year.
As the new leading party, National must work in coalition with the Act and New Zealand First parties. And their ambitious tax relief plan isn’t helping these three parties (with very different goals) come together as a unified front.
For example, allowing foreign buyers to invest in New Zealand's real estate market, which is currently closed, would go against the nationalist policy of NZ First. And large tax cuts have the Act Party concerned about the risk of aggravating inflation rather than salving it.
With so many factors at odds, will National’s plan to tax offshore online gambling come to fruition? No one can say for sure. But the possibility remains persistent, if not likely. So, what does that mean for New Zealand’s gambling operators and participants?
Foreign online casinos can currently operate legally in New Zealand. However, the new proposal suggests that these casinos, which are registered outside the country, will need to pay a 15% tax to continue their operation.
New online casinos in NZ may very well have more hoops to jump through to stunt the growing “tax loophole” if National’s plan succeeds. Furthermore, top-paying NZ casinos will have to consider the expensive price tag attached to the New Zealand market if they operate offshore.
Kiwi players might notice less variety, with the sphere of NZ online casinos growing smaller after the hike in government fees. However, some may find that a fair trade while paying less income tax and receiving tax credits.
Even though it’s fairly new to New Zealand, the online gambling market is already massive and growing quickly, estimated to be close to NZ$200 billion. Although some companies readily comply with government asks, creating an entire regulatory system is a big undertaking.
Some tax experts claim National’s plan is easier said than done, as the proposed regulations may be quite easy for dishonest gambling operators to avoid. Labour Ministers even declared the forecasted revenue for the online gambling tax to be about “$130 million overcooked”.
There’s a lot to discover about the future under a new National Party whose main initiatives are to confront the underlying drivers of inflation and reverse economic trends – especially when gambling plays such a significant role. So, let’s get into the nitty-gritty of this plan.
Unpacking the National Party’s plan for online gambling during election campaigning
As stated, New Zealand’s National Party hopes to achieve significant tax cuts for citizens, funded by four main revenue measures. The purpose of targeting these measures is to re-allocate taxes from the paychecks of Kiwis to other high-income sectors.
If we’re looking at numbers, National aims to create nearly $180 million in revenue through the gambling tax to help pay for its $14.6 billion fiscal policy. Billions more from other targeted revenue measures and reprioritisations will contribute to the bill.
Of course, National plans to collect this large sum without increasing pressure on the “squeezed middle class”. The Party’s finance spokesperson, Nicola Willis, assumes Kiwis will agree with the targeted areas, even questioning why they haven’t already taxed those things.
“We’ve identified a little bit of unfairness in New Zealand’s current tax system, and we’re proposing some new measures that will ensure that we have the revenue to responsibly fund income tax reductions for the squeezed middle,” Willis says.
Describing it as a bit of wild, wild west situation with NZ online casinos, the new leading party has discovered a loophole where gambling enterprises operating offshore are not required to register their earnings in New Zealand.
And since domestic casinos must report their earnings and pay their dues, it makes sense that National quickly identified offshore casinos as a missed opportunity. Offshore gambling companies can make all of the money they want in the NZ market and not pay a dime back.
Nicola Willis boldly described the process as a chase, saying, “What we're proposing is a licensing regime so that you have to be licensed here, and then we can chase you for your GST and your gambling duties.”
According to their official Back Pocket Boost tax relief document, National will close the online casino gambling tax loophole by:
- Establishing a regulatory regime for online casino gambling to ensure offshore operators pay their fair share.
- Requiring NZ online casino operators to register and report their earnings for tax purposes, with IP ‘geo-blocking’ of services that do not comply with the New Zealand licensing regime.
- An IP geo-blocking system creates a way for the government to automatically decipher the location of online casinos and block players from using the site if the gambling operator hasn’t registered for taxes in New Zealand.
As confident as their plan sounds, National hasn’t gone without scepticism from others. The Labour Party’s Minister of Revenue and Economic Development, Barbara Edmonds, says that there is no tax loophole on offshore online gambling but rather with the tax plan itself.
Nicola Willis was quick to point the finger back, though, claiming that current measures are not well-regulated and that the only offshore casinos on the web paying tax are those who have “agreed” to do so.
Both claims are fairly vague, with little to no specificity to back them up. However, the National Party is confident in its analysis of the tax plan. They’ve stacked their research with data provided by SkyCity, one of NZ’s largest domestic casino chains that also operates online.
"We know that they have estimated it, and we know that they get market-based estimates of the size of that market. You can imagine, for people providing gambling here, they've looked very closely at the size of that market, and they're very aware of it," Willis says.
Apparently, there were other top online casinos in NZ that contributed to the research, but they were never named. Surely domestic gambling enterprises will benefit from less competition, but will enthusiasts find it beneficial too, or be stuck with higher player fees? Only time will tell.
What are the current gambling taxes in NZ?
Even though NZ’s online casinos seem like the Wild West to some, the New Zealand government has plenty of taxes and levies in place for the gambling market as a whole. It’s only a matter of time before the same regulations pull the reigns on the online sphere.
Gambling entities in New Zealand are required to pay a Problem Gambling Levy (PGL) on top of their Goods and Services Tax (GST). This includes domestic online and in-person casino operators, gaming machine operators, the racing industry, and the Lotteries Commission.
The PGL is set to a different rate for each type of gambling, with the New Zealand Lotteries Commission paying the lowest at 44% and non-casino gaming machine operators paying the highest at 1.08%.
For domestic gambling operators, the levy is automatically applied when they file their tax returns. Inland Revenue (IRD) issues a GST invoice that explains the GST component of their PGL, which is adjusted according to the company’s profits and sector.
Although many people just play for fun, it’s relatively common for betting and gambling to take over one's life and start causing problems. To tackle this, New Zealand’s Ministry of Health has an array of treatments and prevention tactics.
Providing various helplines and addiction centres costs money, which is where the PGL comes in. Unfortunately for them, New Zealand gambling enterprises can’t be at the heart of a social issue and profit off of it without paying back into the solution.
Carrying that perspective might make one feel differently about offshore casinos affecting the lives of so many Kiwis playing online while forgoing contributions to our health system and social safety net.
What to expect in 2024
With National seated as the majority in New Zealand’s government coalition, their plans to tax offshore online gambling will likely go forward. But can we expect this initiative to be 100% effective, or will many offshore companies slip through the cracks?
Some experts, like Victoria University law and tax specialist Jonathan Barrett, see the plan as logistically weak. With the web growing broader and more untamed each day, keeping tabs on online operators could quickly turn into a resource-intensive goose chase.
Barrett gave insight on the matter, saying, “I’ve done a very brief Google search to see what’s available on Tor (a web browser that allows access to the so-called ‘dark web’). The first thing that came up: ‘Tor casino: we can circumvent all national jurisdictions and applicable laws.’”
A foolproof offshore online gambling system may not be likely, but expect National to move forward with regulations anyway. Even if the tax plan doesn’t reach the forecasted revenue of $200 billion, the initiative will likely collect some money towards a relief plan that benefits New Zealand and its people.
And hey, something is better than nothing. Let’s just hope that the cost of enacting the measure doesn’t outweigh the earnings.