On March 14, 2024, the New Zealand Parliament introduced an amendment aiming to tax offshore online gambling. This move, part of the National Party’s plan, is expected to enhance tax fairness by closing a loophole that previously benefited offshore operators. The new duty aligns with GST provisions and is predicted to generate significant revenue, although estimates vary. Set to take effect from July 2024, this tax reform seeks to regulate online casinos and align New Zealand with international standards in online gambling taxation.

The Essence of the New Duty

The National Party has described this new tax as a crucial measure to “close a tax loophole” that previously allowed offshore gambling operators to avoid paying certain local taxes. While these offshore entities were required to pay Goods and Services Tax (GST) in New Zealand, they did not face the same tax obligations as domestic operators, who are also subject to company tax, casino duties, gaming machine duty, problem gambling levies, and employment taxes.

Financial Implications

According to estimates provided by the National Party, this new duty is expected to generate NZ$716 million in revenue over the next four years. However, a more conservative forecast from the Inland Revenue’s Regulatory Impact Statement suggests that the actual figure might be closer to NZ$145 million.

Operational Details of the Duty

The newly introduced offshore gambling duty, also known as the Duty, is designed to work in tandem with the existing GST framework for remote services. This design allows for the use of current systems to administer the Duty efficiently. Remote gambling operators, or Operators, providing services to New Zealand residents exceeding NZ$60,000 in a 12-month period, must register for and file GST returns.

The Duty is imposed at a rate of 12% on the profits from offshore gambling. These profits are calculated after deducting any amounts already subjected to a 10% consumption charge on offshore betting, as well as prize money paid back to bettors. The legislation provides mechanisms for carrying forward losses, allowing operators to offset these against future profits, which can be particularly relevant in the volatile gambling industry.

Verification and Compliance

Operators are required to verify that users are physically located in New Zealand using at least two forms of evidence, such as billing addresses, IP addresses, bank details, or mobile country codes. Compliance with these rules is essential as the Duty applies to services provided from July 1, 2024, onwards. Operators must file reports and payments quarterly, adhering to strict deadlines set by the Inland Revenue.

International Context and Future Outlook

During the announcement, Revenue Minister Hon Simon Watts pointed out that New Zealand was lagging behind other developed countries in regulating online gambling. Unlike in Australia, Canada, the United States, and Singapore where offshore gambling is illegal, New Zealand aims to regulate and tax such activities. This approach aligns more closely with European countries that have established gaming duties to manage and tax online gambling with Italy, Sweden, Spain, the UK, Denmark, and the Netherlands all applying gaming duty rates on online gambling of between 19% and 29%.

The implementation of this 12% Duty, combined with existing GST, sets the total tax burden for offshore operators at about 25%. This rate positions New Zealand mid-range compared to other countries with similar taxes, promoting fairness and competitiveness in the international gambling market.

As the legislative process continues, the impact of these changes will be monitored closely, with adjustments likely as the industry, stakeholders, and regulators align with the new requirements. This tax reform is a significant step towards ensuring that offshore operators contributing to the local economy through online gambling are taxed appropriately, enhancing revenue and ensuring a level playing field for all gambling entities operating in New Zealand.