It’s in the cards: offshore gambling duty

By Viola Trnski & Robyn Walker

On 14 March 2024, Parliament introduced Amendment Paper No 20 to the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill. Amongst other proposals, the Amendment Paper substantiates a proposal of the National Party’s election campaign to tax offshore online gambling.

National described the new duty in their tax plan as “closing a tax loophole” and “ensuring offshore operators delivering online gambling to New Zealanders, pay tax”. The “loophole” likely refers to offshore operators only being required to pay GST in New Zealand, while operators located in New Zealand are also required to pay company tax, casino duties, gaming machine duty, problem gambling levies, and employment taxes.

While the estimates pitched by National claimed the tax would raise NZ$716 million in revenue over 4 years, the Regulatory Impact Statement prepared by Inland Revenue predicted it would only bring in NZ$145 million. 

How does it work?

The offshore gambling duty (Duty) has been designed to align with the GST rules for the supply of remote services to allow existing systems to be used. Remote gambling operators (Operators) are currently required to register and file GST returns in New Zealand if they provide more than $60,000 of gambling services to New Zealand residents in a 12-month period.

The Duty will apply at a rate of 12% of offshore gambling profits. Profits are calculated after subtracting any “offshore betting amounts” which are already subject to consumption charges of 10% (being betting and sports and racing by New Zealand residents conducted through offshore operators). Amounts paid back to New Zealand residents (i.e. prize money) are also subtracted. This specific definition of “profits” is included in the draft legislation. If a negative amount of revenue is recorded, then the Operator can carry the loss forward to the next quarter and offset it against future profits.

Operators must determine whether the user is physically located in New Zealand by using at least two pieces of evidence (as the current GST remote services rules also require), which may include any commercially relevant information such as billing address, IP address, bank details, and mobile country code.

The Duty will apply for services provided on or after 1 July 2024. Reporting information must be filed with Inland Revenue for each quarter, by the 28th day of the month following the end of the quarter (and by 7 May for the quarter ending 31 March). Payment must also be made by the same date. Therefore, the first filing and payment date is 28 October 2024, for the July – September quarter.

The existing disputes and penalties process outlined in the Tax Administration Act 1994 will also apply to the level, as will Use of Money Interest (interest charged by Inland Revenue for late payments to incentivise paying tax on time) on unpaid amounts. 

How do New Zealand’s rules compare to other countries?

Revenue Minister, Hon Simon Watts, noted “New Zealand is one of only a handful of developed countries that does not regulate online casinos”. This was supported by policy officials who warned New Zealand “is one of the last countries in the OECD with an unregulated online gambling market, which makes it a target for offshore operators”.

In Australia, Canada, the United States and Singapore, offshore gambling is illegal. However, banning or blocking websites can be difficult to enforce, leading other countries, mainly in Europe, to introduce gaming duties. This is what the rules proposed in New Zealand are modelled on.

The 12% Duty will bring the approximate amount of tax paid by offshore operators to 25%, once GST is factored in. GST amounts to around 13% (or 3/23rds) of gross betting revenue because GST on gambling is applied to a GST-inclusive amount. This brings New Zealand into the mid-range of other countries that have introduced similar regimes, with Italy, the UK, Sweden, Spain, Denmark, and the Netherlands all applying gaming duty rates on online gambling of between 20% and 29%.

What now?

While National publicised the proposal during the election campaign in October 2023, the proposals were introduced in the later legislative stages and therefore will not be subject to public consultation and Select Committee scrutiny.

However, policy officials relied on information from other government departments “who have insights about these stakeholders and information provided through previous consultation or public comment” including public consultation by the Department of Internal Affairs, who regulate most gambling in New Zealand, in 2019.

The Minister of Revenue also confirmed that Cabinet “made an in-principle decision to regulate online casino gambling” to “support tax collection, minimise harm and provide consumer protections to New Zealanders.” What this might look like is yet to be seen.

The Bill legislating these changes needs to pass through its final Parliamentary stages before 31 March 2024.

If you would like to discuss the offshore gambling duty or any other tax issues, please contact your usual Deloitte adviser.