What Benefits Does Ukraine Get from the Legitimisation of Gambling?

For the first time in 11 years, the Ukrainian gaming market began a full-fledged operation last year. The state budget has already received the first dividends from the issuance of licences. Casino operators calculated their first revenues.

The Advantages of Launching a Gaming Market in the Country

Anton Kuchukhidze, chairman of the Ukrainian Gambling Council, notes:

The return of the legality of gambling is an important stage in the development of the Ukrainian economy. The state creates a legal environment for the full-fledged operation of the business, to protect the life and health of the citizens.

The expert identifies three key reasons why the launch of gambling is beneficial for the country:

The Economy’s Emerge from the Shadows and the Fight against Corruption

According to the Antimonopoly Committee, the volume of the illegal gambling market amounted to over ₴60 billion in 2018–2019.

Analysts claim that the factual figure is many times higher. The state treasury has not received billions in taxes over the past 11 years — after the introduction of a ban on gambling in 2009 (Act No. 1334-VI).

The legalisation of gambling in 2020 is a confident step towards the fight against corruption and the unshadowing of the market. Ukraine will not deviate from the intended path, especially given the work done and the support of foreign partners (IMF, EBRD).

The Strengthening of Social Protection

The regulatory framework has been developed considering the experience of European countries (Belgium, France, Romania), which have already gone through the path of gambling legalisation. Therefore, it is not surprising that most of the articles of Law No. 768-IX of July 14, 2020 are devoted to the social protection of citizens.

The list of the main legislation norms includes such points:

• Gambling activities are allowed to persons over 21 years of age. Operators can raise the age limit at their discretion.
• The mandatory player verification system is introduced in the form of online registers. When visiting a land-based establishment for the first time, a guest must provide proof of identity and age. The verification in the internet sphere will be based on the MobileID and BankID methods.
• Land-based gambling establishments can be located no closer than 500 meters from educational establishments.
• Gambling advertising must not be directed to persons under the age of 21.

Ukraine has created all the conditions for the development of the socially responsible gambling business. The legislation provides effective mechanisms for the protection of children and persons with gambling addiction.

The Creation of a Positive Investment Climate

Victoria Zakrevska, Deputy Head of the Ukrainian Gambling Council, notes:

The authorities plan to turn the Ukrainian gaming market into the largest East European gambling hub.

The government's expectations are quite reasonable, given:

• a good geographical location of the country at the intersection of western and eastern cultural environments;
• a complete or partial ban on gambling in neighbouring countries (for example, in Belarus, the legalisation of gambling is in limbo; in Russia, it is allowed to play games of chance only in four dedicated zones).

The main focus is on guests from the Middle East, where gambling is prohibited due to religious specifics.

People from the UAE, Saudi Arabia, Qatar, and other countries of this region are characterised by a high level of income and wanderlust. For them, Ukraine is a kind of cosmopolitan state with good service, interesting architecture, and many leisure options.

The legalisation of gambling concerns not only the gaming industry but also the rise of the Ukrainian economy as a whole. The authorities expect a boom in the construction of hotel and entertainment centres, including land-based casinos, guest houses, restaurants, and shopping malls.

Victoria Zakrevska is sure that:

The launch of the gambling market will give a manifold multiplier effect from indirect income. These are investments in IT, tourism, commercial real estate construction, hospitality, leisure, and other related industries.

Ukrainian Gambling: Licences and Taxes

In 2021, the authorities expected to receive:

• over ₴7.4 billion revenues from licence sales;
• over ₴1.5 billion from tax deductions;
• over ₴11.2 billion from investment in organising the gambling business.

Consider what the announced figures will consist of.

Obtaining Permission Documents

Borys Baum, first deputy head of Gambling and Lottery Regulation Commission, notes:

At the beginning of autumn, business entities received 35 licences. 24 permits were issued to organisers of online and land-based gambling projects. Representatives of the B2B segment of the industry received 11 licences.

Nevertheless, licensing in Ukraine remains one of the most expensive in Europe:

The authors of Law No. 768-IX, headed by Finance Minister Danylo Hetmantsev, note that the high cost of licensing is one of the methods to combat dishonest companies. Having paid significant amounts for permits, organisers of gambling and lottery projects are unlikely to act outside the law and risk their reputation.

Tax Deductions

In the summer of 2021, Verkhovna Rada voted for bill No. 2713-d in the first reading.

The document defines three groups of deductions to the budget:

1. Taxes for organisers of gambling and lottery projects. The draft law establishes a single 10% levy (GGR — gross gambling revenues). The taxable base is calculated as the sum of all the bets made by gamers (in casinos, bookmaker’s offices and lotto terminals) minus their winnings. The tax is paid regardless of whether a company received a net profit at the end of the reporting period.
2. Deductions for licence holders. Into this group of contributions fall organisers of gambling entertainment, as well as representatives of the B2B segment (casino software developers, content aggregators, and enterprises that provide technical support). Licensed companies, like any business with Ukrainian registration, pay 18% of the net profit.
3. Taxes for gamblers. Operators are tax agents of gamers. They are required to withhold 19.5% of each prize (18% income tax and 1.5% military tax) received at a casino or a bookmaker’s office. Prizes less than 10 times the minimum wages are not taxed. In the draft state budget for 2022, this amount is equal to ₴65 thousand.

Borys Baum notes:

If bill No. 2713-d will be voted in December of this year, we will see a new wave of operators in January.

The government has applied a reasonable approach to gambling taxation and taken successful European experience as a basis. In the EU, there is a clear correlation between the amount of licence fees and the GGR rate.

In countries with a high cost of permits (for example, Italy or Belgium), the specialised tax is 9–11%. The total fiscal burden on the gambling business does not exceed 22%. Conversely, in states with minimal licence fees (such as France), the GGR level reaches 80%.

The initiators of bill No. 2713-d have chosen the first business model for Ukraine. They balanced the high cost of permits with low tax rates.

How Does the Government Plan to Spend Profits from the Gambling Industry?

Verkhovna Rada provided for revenues from the gambling industry (₴7.4 billion) in the 2021 state budget. This amount mainly consists of issuing licences for offline and online operators, as well as representatives of the B2B sector.

In 2022, the proceeds will be redirected to the needs of medicine, education and science, as well as the local budgets of the cities where gaming establishments are located.

The Ministry of Finance has published a plan for the distribution of income from gambling:

Expense item	Amount, ₴ billion
Airport construction	1,0
The Establishment of the Fund for the Development of Institutions of National Importance under the Ministry of Culture	2,0
The development of the clinical base at the National Cancer Institute	1,5
The subventions to local budgets (for the creation of cultural centres and events for socio-economic development)	2,9
Total	7,4

The Main Things about the Prospects of Ukrainian Gaming Industry

In 2021, the entertainment market in the country started operating in full. The state treasury received the first revenues from issuing licences and taxes.

• The list of advantages from launching the gambling sector in Ukraine includes the economy’s emergence from the shadows, the fight against corruption, the strengthening of social protection, and the creation of a positive investment climate. Many experts call the country a future Eastern European hub, given its geographical location and the legalisation of all types of gambling.
• The government plans to receive ₴7.4 billion of revenues to the budget through the issuance of permits. In 2022, money from the special fund will be spent on the development of sports, science, and medicine.
• In the summer of 2021, Verkhovna Rada adopted draft law No. 2713-d on taxation of organisers of gambling activities. The government has provided loyal contribution rates — 10% of gross gaming revenue.

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