Islj 2009 3-4 - TMC Asser Instituut

estriction in the most extensive way after all may not be in the best
interests of the general public.
4. The market
Given the comparatively “heavy” regulation of the industry and taking
into account the overall population (i.e. size of the market) of
Latvia, it comes as no surprise that there is only one operator of sports
betting licensed in Latvia. 37 The general trend in the sports betting
market is that betting is done interactively, i.e., via Internet, telephone,
television, radio, or by any other type of electronic communications
means. Thus, the only sports betting organizer in Latvia, in
addition to the 17 fixed locations it runs, has also taken out the interactive
gambling licence.
Unlike in several other countries, Latvia imposes no prohibitions in
relation to online gambling. There is an explicit regulation, which
shows that Latvia considers it to be a legitimate business activity.
Furthermore, despite that the E-Commerce directive 38 allows restricting
online gambling services originating from other EU Member
States, Latvia has neither restricted its residents from gambling on foreign
websites, nor has it restricted access to such sites. Consequently,
not only sports betting organizers from other EU Member States, but
also from third countries, are able to render and target their services
to the Latvian public. Given that these websites operate according to
the laws of their registration countries and are not controlled by the
Inspection, the Latvian consumers using these services do so at their
own risk. Nevertheless, judging from the frequency of the advertisements
these foreign gambling sites place in the Latvian portals, it
must be concluded that consumers do not find the lack of Inspection
back-up as a major factor and are using these services at least to the
extent that it makes economic sense for the operators to be present on
the market. In fact there has not been much public turmoil regarding
any fraudulent cases by these foreign operators and, although the
Inspection might have received some complaints from consumers, as
of today it has not published any “black lists” or warnings regarding
particular sites which should be avoided. Hence, it would be fair to
say that the Latvian sports betting market consists of two parts - the
locally licensed and the foreign online operators.
In these circumstances it is hard to tell the actual value and size of
the market. Although the Inspection publishes statistics on the betting
market, given that there is only one licensed operator in Latvia,
these figures basically reflect the revenues of this company. It would
be incorrect to assume that the company has a 100% market share,
but on the other hand, it is also difficult to tell what the actual market
share might be. There is no information as to the total market
share the foreign operators have managed to obtain. Nevertheless,
according to the most recent data published by the Inspection, 39 in
the first quarter of 2009 (January-March), the turnover of the one
betting organizer in Latvia was 2,7 [PA1]million LVL. Such turnover
makes it the third largest gambling company by turnover in the whole
industry. In year 2008 the total turnover from games of chance was
154 million LVL, of which betting accounted for 10 million LVL. It
was the fourth largest turnover by companies in the gambling sector.
In fact, given the economic downturn, out of all games of chance only
the betting sector has demonstrated an increase if compared to results
of 2007 (8,2 [PA2]million LVL). The same tendency is visible comparing
the turnovers in the first quarter of 2008 (2,3 [PA3]million
37 SIA Tele Toto, Br v bas iela 99, R ga LV-
1001, Latvia, www.optibet.lv;
38 Directive 2000/31/EC of the European
Parliament and of the Council of 8 June
2000 on certain legal aspects of information
society services, in particular electronic
commerce, in the Internal Market
(‘Directive on electronic commerce’),
Official Journal L 178 , 17/07/2000 P.
0001 - 0016, article 1.5.c;
39 Supra note 6, Annual Public Report
2008;
40Amendments to the Law „On Lotteries
and Gambling Tax and Fee”; adopted 16
June 2009;
41 Latvian Law on Lotteries and Gambling
Tax and Fee, adopted on 16 June 1994,
articles 13 and 14;
42 Supra note 6, Annual Public Report 2008;
43 Law on Personal Income tax of Republic
of Latvia, adopted 11 May 1993, article
3.16 and art. 17.10.10;
44 Cabinet of Ministers Regulations No
233, adopted 01 July 1997, „Procedures
how personal income tax is levied on
persons’ income from lotteries and gambling”,
article 3.2;
LVL) to the first quarter of 2009 (2,7 [PA4]million LVL). Given the
~ 10 million LVL annual turnover for a single company, and the number
of foreign online sites actively advertising on the market
(bwin.com, betway.com, triobet.com, expekt.com, betsafe.com, etc),
the actual size must be at least double of that.
5. Taxation
Currently in Latvia the gambling tax and its payment order is regulated
by the law “On Lotteries and Gambling Tax and Fee” (hereinafter
the Law on Gambling Tax), adopted on June 16, 1994. The
Law on Gambling Tax has had thirteen amendments, which together
determine the tax and duties rates to be paid by enterprises that have
received gambling licenses. The quantity of the amendments is interrelated
with the growth of the gambling industry and its turnover.
Initially the gambling tax was levied as a fixed rate on particular type
of gambling. However with amendments adopted on September 19,
2003, the tax on the organization and operation of totalizator and betting
was set as a percentage of the income from the activity.
The gambling tax, along with the excise tax for tobacco and alcohol,
is usually the first to be reviewed when the government needs to
raise revenue for the state budget. On the other hand, even when the
economy is in a decent shape, the tax rates are still increased to implement
the defined Latvia’s policy - i.e. to control the growth of the
industry. Considering the present economical downturn, Saeima has
adopted yet another amendment to the Law on Gambling Tax, which
came in force on July 1, 2009. 40 The tax rate for sports betting has
been raised to 15% from the organizers income, instead of the 10%
rate that was applicable before. The Law on Gambling Tax prescribes
that the tax payment is made on a monthly basis as 1/12 of the total
yearly tax rate. In the case if the tax amount is indicated incorrectly or
the tax payment is delayed the State Revenue Service is empowered to
impose strict sanctions, e.g., including disputeless tax recovery, legal
penalties up to 250% from the payable tax amount and the annulment
of gambling organizers’ licence. 41
Unfortunately there are no statistics available as to the taxes collected
in particular from betting activities, however, in the first quarter of
2009 the collected gambling tax from the whole gambling industry
amounted to 5,2 [PA5]million LVL in the state budget and additional
1,5 [PA6]million LVL in the municipality budgets. In addition to
the gambling tax the companies also pay corporate income tax, social
contributions, VAT and other taxes which in the first quarter of 2009
amounted to 2,8 [PA7]million LVL. Altogether in 2008 the industry
paid 23,8 [PA8]million LVL as a gambling tax in the state budget, 6,9
[PA9]million in municipality budget and the other taxes amounted to
18,2 [PA10]million LVL. 42 Comparing the 2008 results to 2007 results
there is a slight drop and the same is true if comparing the first quarter
of 2009 and the first quarter of 2008. The results of the third
quarter of 2009 should indicate whether the new tax rates in force as
of July 1, 2009, will increase the tax revenues or will slow down the
industry even more.
The last taxation aspect to be mentioned is that any winnings from
a gambling activity are taxable personal income (23% rate). 43 In accordance
with Latvian tax law, the gambling organizers are obliged to
withhold personal income tax and make respective contributions into
the state budget on behalf of that person for any winnings above 500
LVL. 44 Although the average winnings from sports betting might not
reach 500 LVL, if they do, the foreign online sports betting organizers
are once again in an advantageous situation if compared to the
local organizer. That is, they are not bound by this obligation and are
able to remit the whole winning to the person without any withholdings.
In such case, and also in cases where the winnings do not reach
LVL 500, the Latvian resident itself is expected to declare such income
and make the tax payments.
6. Conclusion
Despite the economic downturn, the results of the sole sports betting
organizer show that the market is still reasonably active. The fact that
there is only one company licensed should not lead to false assumptions
that the market is unattractive for other companies. On the con-
A RT I C L E S
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