Billion‑Level Taxes and Strict Restrictions: How the Gambling Business Operates in Ukraine

Billion‑Level Taxes and Strict Restrictions: How the Gambling Business Operates in Ukraine

A few years ago, Ukraine legalized the gambling business. Learn how the still‑very‑young Ukrainian gambling market operates and what changes are taking place in the industry in this piece from the 24 channel.

Gambling is legalized in many developed countries around the world — the United States, the United Kingdom, Germany, Spain, Belgium, and others. Only recently, namely in 2020, Ukraine joined the club of legal gambling businesses 24 Kanal.

Strict rules in the market

The state offered all players to operate transparently by paying an annual license and taxes. Today the gambling business in Ukraine is heavily taxed. It has one of the highest levies in Europe. In particular, according to the legislation, the gambling business pays to the budget:

Corporate profit tax – 18%;

Tax on winnings – from the entire amount of a win, PIT (personal income tax) 18% and military tax 1,5% are paid;

Income tax – 18% of revenue after payouts to players (for gaming machines – 10% of revenue, for lottery organizers – 30%);

Annual licenses for each type of activity, as well as separate licenses for gaming tables and machines.

Moreover, gambling has clear and fairly strict rules. In particular, access to gambling may be granted only to persons no younger than 21 years. All players must go through identification to use gambling services. Relatives may restrict a player if they discover an addiction. Interestingly, a player can even do this for themselves. And halls with gaming machines cannot be located next to buildings that house educational institutions, health care facilities, or government bodies.

These are just a few examples of restrictions. If the gambling business does not comply, it must pay huge fines that can equal 500 minimum wages (3,35 million hryvnias). Therefore every land‑based or online casino follows strict rules.

The gambling business in Ukraine adheres to strict rules / Photo Pexels

Overall, the gambling business in Ukraine can be called quite regulated. As of 1 December 2022, 47 companies in the gambling sector were operating in Ukraine under licenses:

19 gaming machine halls,

14 online casinos,

8 casino halls,

3 companies engaged in bookmaker activities,

3 companies offering online poker.

However, that number is already smaller. Recently there were major market cleanups. A decree appeared on the President’s website introducing sanctions against 120 individuals and 287 companies. A number of representatives of the gambling business who were sanctioned avoided paying taxes or had ties to Russia.

Part of the market remains in the shadow economy

In fact, at the very beginning of the formation and development of this industry, Russia launched a full‑scale invasion of Ukraine, and 2022 was the hardest year in history for all Ukrainian business, including gambling. Considering the martial law, on 1 April the Verkhovna Rada adopted amendments to the Tax Code allowing gambling operators to switch to a simplified taxation system and pay only 2%. However, even under such conditions some market players found workarounds to minimize contributions to the budget.

The vast majority of gambling organizers brazenly evaded paying taxes. The evasion was carried out with the participation of banks. There were nine such banks, — says the head of the Verkhovna Rada Committee on Tax and Customs Policy, Danylo Hetmantsev.

This concerns an investigation by the Bureau of Economic Security into the mis‑coding scheme widely used by bookmakers. The essence of the scheme is that every online payment has its own digital code. The gambling code is 7995. Transactions associated with bets should be marked with this code. However, a company can ‘mistakenly’ enter a different code. For example, 7994, which corresponds to computer games. It may seem pointless since the money exists. But that’s not the case. The whole difference is in the tax rate, because by law the bookmaker business is obliged to pay hefty 18% on profit, 22% social security contribution, from 10% to 18% tax on gross gaming revenue, and 19,5% tax on the player’s winnings. Mis‑coding allows minimizing taxes.

According to Forbes, several banks and the bookmakers themselves were involved in the scheme. As a result, Ukrainian companies generating 145–180 billion hryvnias per year (according to the NBU) paid only 730 million hryvnias in 2022 year.

But the problem is that almost all of these taxes are PIT — that is, personal income tax paid by individuals who yesterday received income and salaries through these schemes and winnings. Meanwhile, gambling companies’ revenues continue to contribute pennies to the state budget, — said Member of Parliament Yaroslav Zheleznyak. — Moreover, almost 300 million of these 730 in 2022 year was paid by just one company.

Judging by the stated amount and open sources, this refers to the Ukrainian online casino PIN‑UP.UA. Last year the company transferred more than 271,2 million in taxes and license fees. However, it became the target of an information attack claiming it was added to the NSDC sanctions list alongside the bookmaker Parimatch. Some media outlets and Telegram channels published information that Ukraine also imposed sanctions on PIN‑UP. To confirm the falsehood of these reports, it is enough to check the website of the President of Ukraine.

“PIN‑UP Ukraine is one of the responsible leaders in the licensed casino market in Ukraine; it supports the state economy and implements a large number of humanitarian and charitable projects for Ukrainians. So it pains me to see planted articles in the media and hear some politicians’ statements aimed not at developing the industry but at discrediting one of the industry’s key taxpayers. In 2022 year PIN‑UP Ukraine paid 271,2 million hryvnias in taxes and license fees, and in just two months of 2023 it has already sent 304,8 million in tax transfers to the state budget. They don’t like that we pay conscientiously, but we will continue to develop the market and support the state,” commented PIN‑UP Ukraine COO Ihor Zotko.

PIN‑UP Ukraine is one of the responsible leaders in Ukraine’s gambling market / Photo PIN‑UP

The authorities have not yet offered any alternative that would help bring the market out of the shadows. For example, the situation with gaming machines is illustrative. According to the law, they must pay 10% of Gross Gaming Revenue (the amount of players’ bets minus wins).

The gambling law forbids them from having a payout fund of less than 90%. By the logic of the law they should break even overall, — says Hetmantsev.

Major market players believe that a more favorable solution could be draft law 2713‑d. It is supposed to establish a fixed tax on winnings and a uniform GGR tax of 10%, but the document has been under parliamentary consideration for two years. In addition, the law will function properly only after the launch of the State Online Monitoring System.

“If, again due to some sabotage (as was before), the State Online Monitoring System does not come into force by 1 April, then the entire gambling business will begin to be additionally taxed by 10% of turnover. Once more, even on — writes Zheleznyak — I hope this is a sufficient motivator for the industry to help launch the system, not oppose it as before.”

Leading world economies have repeatedly shown by example that liberalizing tax legislation helps fill the budget far better than fiscal repression against business.

The gambling business fills the budget

The decision on the simplified taxation system has already been canceled, and gambling is now paying taxes in full. And revenue amounts from the legal gambling business are sizable! Just in January of this year land‑based and online casinos in Ukraine paid 269 million hryvnias to the budget. So the potential of the gambling business as a source of Ukrainian budget revenue is large.

Attention! At the beginning of the full‑scale war the government reduced licensing obligations for many business representatives, including gaming. However, already in February 2023 the Commission for the Regulation of Gambling and Lotteries (KRAIL) reported that the Cabinet wants to oblige legal offline operators to pay license fees for the past and the coming year.

It is important to understand that the state gets money from the gambling business indirectly as well, for example through hotels that opened casinos or IT companies that cooperate with online casinos. As Ukrainian Gambling Council head Anton Kuchukhidze says, more than 30 billion hryvnias were accumulated from related sectors.

In addition, the gambling business provides jobs for Ukrainians. Currently unemployment in Ukraine is around 30%. So this is a sensitive issue for society. In wartime, when many Ukrainian companies are forced to relocate abroad, it is very important to keep business here in Ukraine.

“I thank the ‘white’ companies that paid taxes before the war and continue to do so during the war, taking a principled position on this issue. We closely monitor various business practices during the war. And I am very grateful to those not‑infrequent companies that, despite difficult circumstances, increase payments, abandon tax‑evasion practices, and demonstrate true patriotism,” said Danylo Hetmantsev at one of the business events in Kyiv.

What’s next?

For now the very young gambling market in Ukraine is developing but becoming increasingly regulated. It already pays billion‑level taxes, and in the near future it could become an even more serious source of revenue for the Ukrainian budget, from which pensions, social payments, roads will be financed and destroyed settlements will be rebuilt.