Will the tax revenue from online gambling explode?

There seems to be an upward trend in the controversial taxation of virtual slot machines. The German Tax Authority has already made several hundred million Euro from online gambling. Quite soon the tax revenue could reach billions – can this still be fair for the individual player?

Just a few weeks ago we had reported that the region of Hessen has made around 20 million Euro in revenue from gambling. In a recently published article called “Finance Office cashes in on virtual gambling”, Jens M. Schmittmann, Professor at the FOM Hochschule and chief editor of the magazines “Der Steuerberater” and the “Betriebsberater” expressed his thoughts on this issue in the trade journal. The article can be accessed online here.

Tax revenue from online gambling is already very high

Since nearly a year the new Gambling State Act (GlüStV) has been adopted in Germany. Licensed providers must pay tax on the deposits made by the players. This is equivalent to 5.3 % of the deposits and is valid for virtual slot machines, as well as for poker games. Since the new Gambling State Act came into force on the 1st of July 2021, the German Tax Authorities have been making profit. Till now there were tax revenues amounting to a three-digit million figure. 

According to the information given by the Federal Ministry of Finance, 156.8 million Euro income from tax on virtual slot machines was generated in 2021. Besides these, there are a further 9.7 million Euro from poker tax. And one must consider here that the tax came into force only in the middle of the year.

The growth in tax revenue in the following months was quite impressive. The revenue generated from virtual slot machines in the first quarter of this year already amounts to 140.7 million Euro. This means that nearly the same income as that of the previous six months was generated in only three months. Besides these, there are around another 7.8 million Euro coming from poker tax.

Should the tax revenue keep increasing at this rate, the online gambling tax will soon become a relevant source of income for the German Tax Authorities. With this growth rate in tax revenue, the sum of one billion Euro as tax paid to the German Finance Authorities could already be reached in the current year.

Jens M. Schmittmann, Professor at the FOM Hochschule and author of the article in the trade journal and found in the link is actually still sceptical, whether the online casinos will fully comply and pay their tax duties:

“It is still unclear, whether the providers will comply and pay the national tax duties.”

Is the online gambling tax fair?

We have already reported several times about the criticism which arose both from the side of the gambling providers, as well as the players themselves. Recently we had reported about a EU-complaint against the plannes online tax. They all agree that the deposit tax of 5.35% is relatively high and it makes gambling unattractive and unpopular. This leads a significant percentage of the players to gamble illegally on the black market.

However, Professor Schmittmann also remarks, that the guests playing online slot machines must neither pay the Value Added Tax, nor the entertainment tax. When one plays physically on the slot machines in the gambling halls, one must pay the Value Added Tax which amounts to 19 %. Besides this, one must also pay the entertainment tax, which varies according to the municipality. It is however a fact, that the state cashes in both from land-based gambling and most recently also from online gambling.

Conclusion

When we look at the current growth in the tax revenue from online gambling, we can conclude that gambling is a lucrative source of income for the state. Just in the first quarter of 2022, the German government has generated nearly 150 million Euro from online gambling – an upward trend. It can be assumed that the controversial tax on virtual slot machines and poker games can be discontinued or lowered by the state. It is however questionable whether the gambling providers nationwide will comply with their tax obligations.

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