Proposed Tax on Gambling Could Alter Onlinea
As late Monday night turned into early Tuesday morning only a handful of gamblers occupied two of the six poker tables in the Horseshoe Casino on Avenida 1 in downtown San José. At the more populated of the two tables, the minimum bet to play a hand of blackjack was ¢2,000, or about $3.30.
A retiree sat at the end of the table, seemingly unconcerned with the results of his bets. As his losses accumulated, his bets increased, even as his demeanor remained indifferent. After several losses in a row, he upped his already hefty minimum bet, putting 10 black chips, two stacks of five, in the small white-lined square designated for bets. A friend noticed.
“That’s a thousand dollar bet,” he said, more in shock than admonishment. The dealer distributed the cards. The retiree drew a three and a five. He tapped the table for a third card and received another five. He tapped again and drew a jack. He had drawn 23 and was busted. The dealer reached over and raked the cards and chips to his side of the table. The game went on.
This scene is commonplace in casino gambling. Exorbitant amounts of money are spent on games of chance and, when the bettor loses the money disguised as chips, the casino collects the losses. In Costa Rica, the gambling and betting industry raked in an estimated $4 billion in 2008. Until now, casinos and online gambling in the country have been free from special taxes and have been unregulated. But this may soon change.
The Proposed Tax
On Tuesday, July 21, Finance Minister Guillermo Zúñiga announced that the Finance Ministry will introduce a bill in the Legislative Assembly to impose a special 2 percent tax on gambling revenues – online and offline – earned in Costa Rica. The bill is set to reach the Legislative Assembly on Monday, Aug. 3, and a vote on its approval is expected to be held sometime in mid-August.
If the bill passes, Zúñiga said, the Finance Ministry plans to create a regulatory body comprised of representatives of the Ministry of the Presidency, Security Ministry, the Costa Rican Tourism Board (ICT), the Chief Prosecutor’s Office, the Judicial Investigation Police (OIJ), and the Superintendence of Financial Entities (SUGEF). This board would attempt to ensure that all gambling locations and affiliates are licensed and are honoring the imposed tax.
The Finance Ministry estimates that the proposed 2 percent tax will generate $85 million in government income.
“The principal idea of the bill is to regulate activity,” Zúñiga said. “Gambling is something that we are currently not monitoring and, thus, not taking advantage of. If we can regulate it, it could create millions of dollars for the economy.”
Online Gambling Mecca
Currently, the ICT reports there are 53 casinos in Costa Rica, and it estimates that there are at least 300 online betting operations and call centers. However, because these are not regulated, the exact number is unknown. What is known is that their earnings are currently untaxed by the Costa Rican government.
“Costa Rica is known as the Mecca for online operators,” said Christopher Costigan, publisher of Gambling911.com. “It is a great place to live and there is a lack of government interference in terms of licensing fees and taxing. Most operators get a license to do business (in Costa Rica), maybe like a data entry license of some type, and only have to pay about $10,000 to set up there.”
Costigan described the process for online betting operators to set up shop in Costa Rica: obtain a data processing license, find a location to take calls and start taking bets.
A majority of the calls received by the locations in Costa Rica come from the U.S., and money earned from the bets are typically routed to banks in Europe or other countries outside Costa Rica, making it very difficult to identify earnings, much less tax them.
“I’ve worked in the industry a long time, and if I were given the project of going to every sports book and call center and finding out what their gross profit is, I don’t think I would be close to accurate,” said a manager of an online betting location in Costa Rica, who asked to remain anonymous. “If they were serious about creating a tax structure, I think that this in not the best direction to take it.”
Previous Attempts to Tax Gambling
In September 2007, the Legislative Assembly passed a law that attempted to tax sports books and electronic betting operations based on the number of employees on their payroll. The tax was applied to firms with 10 or more employes who earned more than ¢10 million (about $17,000) a year. While the law was passed, it hasn’t quite worked as intended. In fact, it is widely ignored.
According to managers at online betting locations, the accounts of operations that reported their earnings to banks subsequently were closed.
“When the operations attempted to be honest with their earnings, their accounts were closed,” said an online betting operator who asked to remain anonymous. “When word got out that the accounts were being closed, online operators adopted a ‘don’t ask don’t tell’ policy.”
With the ‘don’t ask, don’t tell’ mindset of online operators, it appears online betting locations will not willingly identify themselves or their earnings for tax purposes.
Some insinuated they would attempt to avoid regulation as long as possible.
“The people making the decision to try to tax online betting have zero clue about how this industry works,” the anonymous source said.
If the New Tax Passes
According to Zúñiga, the bill is expected to be approved by the Legislative Assembly by mid-August. If the bill is passed, it is expected to dramatically alter the online betting industry in Costa Rica. When similar regulations were applied in other countries, such as Antigua and the DomincanRepublic, it ignited a mass exodus of online operators. A similar effect could be seen in Costa Rica.
“If the tax passes, I’m sure lots of operators would consider leaving the country,” Costigan said. “I assume they would consider moving to other places, such as Panama. Some operators there and they have been doing pretty well the last few years. It’s close enough to Costa Rica to be a potential option.”
Many online operators indicated the tax would drastically alter their operations, if not cause them to leave Costa Rica entirely.
In the meantime, online operators will continue taking calls and placing bets, hoping that luck is on their side and the new tax initiative doesn’t make it into law.
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