Taxes on games of chance are not only a perennial topic of contention among gamblers. The providers of such services also have their burdens with the German tax authorities. Stationary gaming arcades and all others that set up machines in public spaces have to pay a specific amusement tax. This is now to be raised in Frankfurt from 5.5 per cent (which is actually very moderate by comparison) to 7.5 per cent. The operators went on the barricades. The city showed no understanding.

The planned increase in the slot machine tax in Frankfurt am Main is causing an uproar. Operators of amusement arcades and other locations are finding themselves under increasing pressure, as the tax burden they will have to bear will rise noticeably from next year. With the increase from the current 5.5 per cent (we reported back in 2020 when this rate was set) to 7.5 per cent of revenue, the city wants to increase its income to around 22 million euros per year: a significant jump compared to the current 13.5 million euros.

The declared aim is to return to pre-coronavirus pandemic levels, which had plummeted due to the restrictions in place at the time.

While the city is pressing ahead with its budget restructuring, the affected companies are sounding the alarm: at a public meeting of the main and finance committee in mid-November, a large delegation of operators warned of the serious consequences for the industry. Their arguments: a higher tax burden could lead to more and more licensed locations closing, which would strengthen the illegal gambling market and at the same time weaken the protection of minors.

For many of those affected, however, the additional costs are only part of the challenge. It was argued that the operation of an arcade is already associated with a large number of fixed and variable costs - from the high rent in metropolitan areas such as Frankfurt to personnel expenses, licence fees and the purchase of modern machines. In addition, there are strict legal requirements that also have a financial impact, such as for surveillance technology, security measures and prevention programmes, etc.

The conclusion: the tax increase threatens the existence of the industry. After all, it would strengthen the black market. There was no understanding from the city or politicians, and in some cases even rather harsh words. Overall, the direction of the decision seems questionable.

Hessian coin-operated machine association calls for protest in advance

The Hessian Coin-operated Vending Machine Association (HMV) had already sounded the alarm early on when the plans for the tax increase in Frankfurt became known. Members were informed in a circular at the beginning of November.

HMV emphasised that this step was not a surprise: the first indications that the city was planning such a measure became known back in February 2024. Originally, the start date for the tax increase was set for 1 July 2024, but following feedback from the industry and delays in the political decision-making process, implementation was postponed to 1 January 2025.

According to HMV, a meeting was held with representatives of the tax office at the end of February, which was attended by officials from the association as well as entrepreneurs from Frankfurt. However, it quickly became clear that the project was not up for discussion despite the concerns raised:

  • The association had argued that the industry had still not reached the operating figures of 2019 after the pandemic-related cuts. Before coronavirus, around 37 per cent more vending machines were in use than today, which in reality would increase the tax burden by more than a third.
  • However, according to HMV, these arguments received little attention. Instead, reference was made to the need to raise the city's income back to pre-crisis levels - a political decision that was merely being implemented by the administration.
  • Another obstacle was the lack of response from politicians. The association approached the city treasurer several times to discuss the plans, but was repeatedly put off.

When it became clear that the increase was to be introduced at the turn of the year, HMV called on its members to make their presence felt at the decisive public meeting of the Main and Finance Committee in Frankfurt City Hall in mid-November. In its appeal, the association emphasised the importance of a peaceful but emphatic protest:

‘Show presence and concern, but please do so peacefully. Do not disrupt the meeting.’

‘Well, then close it": Sharp tones from the politicians

The discussion in the Main and Finance Committee of the City of Frankfurt quickly took a controversial turn when arcade operators warned urgently of the consequences of the planned tax increase:

  1. According to Michael Stang, second chairman of HMV, the additional burden is jeopardising the existence of many operators. The industry has been under immense pressure since the start of the coronavirus pandemic. The digital transformation has caused many players to migrate to the internet, which has reduced the number of machines in Frankfurt by almost 40 per cent. In a recent article, we looked at the 5 biggest advantages of legal online casinos. Rising operating costs, particularly due to the increased minimum wage and high rents in the city, are also contributing to the burden.
  2. Simon Scherer, the association's legal advisor, emphasised that gaming arcades have made considerable investments in player protection and prevention in recent years. These measures would ensure that customers in legal establishments do not risk financial ruin - in contrast to the dangers of the illegal market. Recently, 45 illegal gaming machines were publicly destroyed in Frankfurt to set an example.

Despite the objections, the city councillors and politicians were not very impressed.

  1. Treasurer Bastian Bergerhoff (Greens) countered the claims by stating that the industry was not on the decline. The number of gaming machines in Frankfurt is currently 312, which is even slightly higher than before the pandemic, when there were 308 machines. Bergerhoff defended the planned increase as appropriate, especially as other cities had long since introduced a similar tax burden.
  2. Falko Görres (Die Partei) and Jutta Ditfurth (Ökolinx), who openly denied the legitimacy of the industry, were particularly harsh. Görres accused the vending machine operators' business model of profiting from the addiction of susceptible people. Ditfurth labelled slot machines as ‘superfluous and dangerous’ and argued that these devices contributed significantly to gambling addiction. Her conclusion was unequivocal: ‘If they [the operators] say they have to close because of the tax, then I say: fine, then close.’
This tone actually reflected the stance of the political motion tabled by the CDU in September. It explicitly aims to reduce the number of gaming machines by increasing the tax burden, thereby acting as a form of addiction prevention. The increase is not only seen as an increase in revenue, but also as an instrument to reduce the attractiveness of the industry. For the operators of gaming arcades and slot machine locations, this indicates that no relief is to be expected from politicians - on the contrary: the tax increase can certainly be seen as a deliberate measure to weaken the industry.

Conclusion

 

Compared to other major German cities, the planned increase in Frankfurt's amusement tax to 7.5 per cent actually seems moderate. Cities such as Munich with 10 per cent, Hamburg with 12 per cent and Berlin with an impressive 20 per cent show that significantly higher rates have long been a reality elsewhere. For outsiders, the Frankfurt tax may therefore still appear justifiable. Nevertheless, the question remains as to how far charges can be pushed without jeopardising the economic basis of an entire industry.

The reasoning of Frankfurt's politicians raises a number of questions. Increasing tax revenues in order to strengthen municipal budgets is understandable and is one of the legitimate tasks of a city. It is also a political right to critically scrutinise business models such as amusement arcades - especially when it comes to sensitive issues such as addiction prevention. However, the public objective of deliberately weakening authorised and regulated businesses raises ethical and economic concerns. Such statements undermine the trust of those affected and could jeopardise the acceptance of political decisions in the long term.

Frankfurt thus exemplifies a fundamental question that goes far beyond local tax policy: how far can regulation go before it becomes a deliberate disadvantage? A solution that balances the interests of all parties involved remains a balancing act that requires a great deal of sensitivity.

Image source: https://pixabay.com/photos/frankfurt-skyline-bank-metropolis-5377161/

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