Gambling Tax Proposal May Impact Ukraine State and Local Budgets

State and local budgets in Ukraine may be adversely affected by the proposed flat tax rate on gambling revenue in the country, a parliamentary committee warned, asking the government to consider subsidies to address the deficit.

High Taxes will Minimize Consumption

The Scientific and Expert Management Committee of the Ukraine Parliament argued that there is not enough evidence to justify a decrease in the tax burden on holders of gambling licenses in the country, outlining that the negative social impact from gambling requires a tax policy that would implement high duties to minimize consumption.

The issue arises from the latest proposal on gambling tax put forth in Ukraine in February, which treats all gambling verticals equally with a 10% flat rate on gross revenue, while the initial plan was for a tax ranging between 10% and 30%.

Besides standardizing the tax rate, the new proposal cancels initial plans for a hike in licensing fees to be implemented and effective until Ukraine’s central monitoring system for gambling is in place and operational, which would have resulted in tripled the revenue prior to the date of launching the system.

The proposal also defines a threshold of 8 times the annual minimum wage in the country, approximately $1,750, with any winnings above it subdued to a winning tax.

Gambling Social Impact Requires Attention

The Scientific and Expert Management Committee also argued that tax policies should take into consideration the need for operators to make additional contributions to social programs to address the negative impact of gambling and thus raise the cost of their services and further reduce gambling levels.

The removal of the license rate hike during the transitional period until the central monitoring system becomes operational would significantly undercut funding available for economic, social and cultural projects, on top of already lower returns from the higher threshold on winnings, the committee continued, stating that all these would lead to budget cuts.

The committee members then reminded that, under the Criminal Code in the country, Article 103, tax benefits that affect local budgets require an offset by central government subsidies, but the proposal has no such provisions in place.

The analysis of the committee concluded by addressing the issue of the implementation date for the new taxes as the legislation was supposed to enter into force from April 1 but that date was already missed and requires an update.

The issue is further complicated by Ukraine’s Budget Code which states that taxes and fees cannot be amended during a budget year, setting a deadline date of July 15 of the year prior for any budget reduction implementations.