BRIEF REVIEW OF THE GAMING INDUSTRY IN BULGARIA IN 2012
The past year brought to the gaming industry in Bulgaria new regulations, new rules, new challenges, new technologies, new stakeholders. It is expected to bring also new tax rates. Whether this will tip the balance for the sector and in what direction is still unclear. Contradictory remained the attitude in the industry, driven by the developments, which led to closure of facilities, dismissal of employees and cutting down the activities of a large part of the gambling organizers. This was due to several major trends:
- The new law set minimum thresholds for the number of gaming seats, which effectively limited the opportunities for small businesses and led to closure of working sites. Industry expectations are that this will lead to further decline by about 30 percent next year.
- The introduction of new investment requirements for different organizers, especially in a complex economic situation in the country, will make impossible for small and medium businesses to qualify.
- The trend of a steady decline in the financial results cemented over the past three years, and the continuing economic recession in the country and the European Union provoked further closure of sites and forced even the big organizers to cut down business.
- There have been preserved the higher tax for ground operators, which were increased by 50% and 67% in early 2010. There was also concerns circulating in the public sphere about appearance of unfair competition from future online organizers by easing the tax regime for them .
- The smoking ban had a significant effect on the performance of the gaming industry. Only a few months after its introducing the branch reported a further decline in revenue by more than 20%.
New Gambling Law
The most significant event in the gaming industry in 2012 was the new Gambling Law approved by the government. It was promulgated on March 30, 2012 and entered into force on June 1, 2012. The repeatedly discussed bill was submitted to Parliament in November last year after being notified to the European Commission and underwent changes reflecting comments submitted by interested parties. After examining the project and its supplements made by various committees, the bill was passed by a majority on second reading in the Parliament on 15 March 2012.
The main motives of the Council of Ministers for new legislation were to regulate the distance gaming and to introduce tighter controls and regulation mechanisms in the sector. An undisputable advantage of the new legal regulation is the possibility to use legally technological innovations for play and betting through online, mobile and other platforms that will enable interested parties to obtain a license for this activity. The regulations are yet to evolve as far as the specific technical and documental requirements to operators who will organize distant games still have to be disclosed, and there are inquiries from foreign investors interested in the Bulgarian market as a place for strategic positioning. Still a question remains whether they will invest in the gaming sector in Bulgaria, due to the small size of the local market, large amount of investments and uncertain tax rates.
A blow to the business was the ban on information for adequate distribution of information and advertising of gambling that made impossible for the legitimate business to distinguish itself from the illegal. Inevitable consequence of the ban will be a complete news blackout on the activities of the entire gaming industry and its impossibility for public dialog, as well as the inability to position itself as a regulated, fair and responsible industry.
Among the positive changes has to be pointed that the new law introduced a requirement to foreign gaming equipment manufacturers to get also a license in Bulgaria. So far the absence of such requirement put the Bulgarian producers in an unequal position. And it introduced a new regime of testing and certification of products by internationally recognized laboratories. The new provisions created a need for additional technical requirements and specifications.
The new Gambling Act came into force officially, but its application in practice is yet to be seen. This vacuum led to a series of questions related to the capabilities of the regulator to react promptly to new requirements. Four months after the enactment of the law most regulations are still under discussion. Changes in technical requirements for different types of gaming equipment have not been finalized and the ways and manner in which the same will be approved and endorsed by specialized laboratories have yet to be specified.
Expectations of the industry that there will be ensured a smooth transition between the old and new law, which will not disrupt the operation of the current organizers are not fully validated. Fears of further business disruption due to incomplete “toolbox” of regulations, tariffs and statutes created stagnation and actually shortened the 15-month period during which the current organizers must bring their activities into compliance with the new law. However, the industry remains hopeful and believes that the state has the will to work out the imperfections and gaps in the regulatory framework, to create a favorable investment climate in the country, to stimulate competition between small, medium and large businesses, to develop a long-term vision for the gaming industry in Bulgaria with a perspective for economic development of the sector.
Tax changes for gambling - equation with many unknowns?
The introduction of new forms of gambling and the gaming industry cybernation forced the government to consider how to tax the organizers of online betting. Expectations are that the government tax on gaming from a distance will significantly increase the treasury revenues. Although the law came into force on 1 July, is still not clear what will be the tax rate for Internet gambling.
The media comments in Bulgaria for a lower tax rate for online gambling are raising concerns among ground organizers. Whether a diversification of taxation would create conditions for unfair competition between terrestrial and online operators, is a matter of controversy. The main goal of the government should be a balanced and manageable tax regime so businesses can continue to exist legally, with shadow sector being encouraged to come to light and pay taxes in Bulgaria. At the same time by maintaining the high rates for ground operators which were increased by 50% for the lottery and lotto games and sports betting and nearly 70 percent for the gambling halls and casinos in early 2010, the regulator condemns their activities to uncertainty and puts barriers to any new investment plans for organizers expansion.
In 2011, tax revenues from gaming activities were over 120 million leva, which exceeded the proceeds from the banking and insurance sector together and accounted over 10% of budget revenues from profit tax. However, business is in uncertainty and can only hope that any changes will be reasonable and balanced. Statements by various government officials indicate hesitation, both in terms of the way of taxation and in terms of the regulations and the possible drafting of a special new law.
The lack of a clearly determined vision by the regulator for changes in the taxation system on the gaming industry activities puts at a crossroads the representatives of the industry in making decisions about strategic renewal of licenses for existing facilities and applying for new ones. And every closed object means less taxpayers and consequently less tax revenues from the industry.
Smoking ban in Bulgaria - intentions for healthy environment with deadly consequences
On June 1, 2012 Bulgaria’s Parliament voted an amendment in the Health Law, which imposed a total ban on smoking in indoor and some outdoor public places. The past period shows that the ban has led to a further decline in revenues in the sector by more than 20%. Representatives of the industry believe firmly that casinos and gambling halls should be treated as an exception and the ban should not be applied for them because of their restricted regime, banning access to minors, as well as their specific non-stop operation. There are also examples in the world where exactly these objects are excluded from the ban.
The indoor smoking ban although driven by understandable motives, still did not foresee all the negative consequences associated with the deterioration of the financial position of businesses. The decline in the revenues, bolstered by this additional factor can not but entails a reduction in the number of jobs in the industry and minimizing of taxes which gaming industry pays annually to the Treasury. Similar disruptions in business, the budget and the society could be avoided if the government develops a strategy towards full liberalization of the smoking ban for specific public places such as casinos and gambling halls. Currently Parliament has introduced a draft bill for Healthcare that provides an eased regime for certain public sites, but whether it will be brought up to a vote or will be rejected in its infancy, is a matter of public and political will, which has to take due care and commitment problems that this decision will cause or permit.