The continual Czech government's tax increases for Czech-based online and retail gambling companies, latest implemented in January 2012, were recently justified as being required for the country to comply with European Union rules to reduce the Czech fiscal deficit.
Companies that take bets on sport events now pay a 20 percent tax on gross wins on top of a corporate income tax rate of 19 percent, which is nearly double that of Poland's 12 percent, and almost four times that of Slovakia's 5.5 percent.
According to Michal Veprek, CFO, his company Fortuna Entertainment group - the largest betting operator in Central Europe - paid over Euro 4 million in taxes in the first half of 2012, which he assessed as a competitive disadvantage compared to foreign rivals in the Czech market that were not obliged to pay any taxes at all.
Taxes seriously impacted the company's finances with net fall of 35 percent, largely due to gambling tax, even though Fortuna posted a 15 percent annual increase in gross wins and a 10 percent annual increase in revenue from bets and lottery, revealed the Chairman Wilf Walsh.
He also warned that the company has established a Malta operation and is ready to switch to an offshore registration which would lead to a lower tax bill and protect shareholder value while increasing the probable dividend pay-out.
“If the situation doesn't improve by the next Annual General Meeting of shareholders, we propose [to move] operations to Malta,“ said Walsh.
With a shell company in Hungary as an offshore platform closer to home, CFO suggests: “In case taxation worsens, we have a safe haven where to move.”
Despite economists' warnings that the increases are likely to prove counter-productive in both the short and long run, the government stays firm that more taxation is necessary which includes a one percent rise in VAT and higher income tax on upper bracket earners.