Katerina Luisa Padera Danhelova, chief executive of Synot Holding, explains why the company supports a transparent market and clear rules, while warning against liquidating provisions, which could open the gate for grey economics and destroy everything that has been built upon over the past 15 years

The gaming industry in the Czech Republic faces a crucial decision, which could in many respects affect its future. Several amendments of the gaming law, which is essential legislation regulating the gaming industry and which sets limits for operation of individual games and the legally required fees of individual gaming companies, are heading to the Chamber of Deputies.

Despite the fact that the majority of responsible companies agree with the necessary amendment of the law, which was last changed in 1998, attention needs to be paid to non-systemic and inconsequently considered steps, which could lead to the abolition of the gaming industry in the Czech Republic.

A crucial issue of submitted amendments of the gaming law is that it seeks an enormous increase in administrative fees from gaming companies. These attempts are motivated by unfamiliarity and a lack of understanding of the current system of fees and taxes.

If we look at the data of the year 2008 then gross turnover of all gaming companies was almost CZK30bn (£1.1bn) and therefore total payment to the government and payment to the public beneficial purposes was CZK7.6bn (£2.6m). So the fees and tax burden is about 25.6 per cent.

Other trading companies would have the same revenue obligation of about 7.6 per cent thanks to a different taxation model. Even today the administrative fees applied to the gaming companies are three to four times higher than those applied to ordinary entrepreneurial subjects.

As well as this the gaming companies cannot lodge any costs as a tax-deductible item, so CZK22.4bn (£7.8m) (i.e. gross turnover minus obligatory payments) is not the profit for gaming companies but turnover from which companies have to pay all their expenses.

Some of the proposals intend to set fees and a tax burden on gaming companies up to 78 per cent of the turnover (simulating on real figures of Synot Lotto a.s. for year 2008). Such high fees and tax burdens would exceed the tax burden of state public enterprises in socialist Czechoslovakia, which was at the beginning of the 80s 75 per cent and has gradually decreased to 55 per cent.

It is also startling that some of the politicians’ attempts to nationalise part of the administrative fees from the gaming industry come at a time when the Czech Republic commemorates its 20th anniversary of so-called Velvet Revolution, which ended the communist era.

They want to redistribute financial resources, which last year reached over CZK3.4bn (£1.1m), through the State Culture Fund instead of leaving it directly to non-profit organisations and foundations where the direct impact goes to the ones in need.

It is even more shocking for us because it is publicly known that the State Culture Fund is coping with multi-million debt and faces judicial proceedings, which could lead to the seizure of its property. On the other hand hundreds of regional or local Civil Associations with thousands of active volunteers, are at present existentially dependent on resources provided directly by gaming companies.

These associations themselves predict that if they were to apply for financial resources from a state institution they are certain that they would not be given the requested financial resources.

We are also convinced that the government should not prohibit the use of the internet in the gaming industry. The government would inevitably expose itself to billions in arbitration. Gaming companies have invested considerably in the development of online sports betting, which they would, in terms of failed investment, request back from the government.

In addition the claim that gaming is more exposed to youths is an excuse because strict registration procedures already exist, which prevent this. The government should aim its attention to implicit abidance of the rules and stop surveying illegal operation of foreign companies in the Czech Republic.

That way the government accepts unequal conditions for market participants with current disadvantage of Czech contractors, which unlike foreign companies are subject to an inspection by the Czech authority and must responsibly fulfil their fees and tax obligation.

Heated discussions are also being held over the legislative grip of interactive video terminals, which are not specifically governed by current law. However, strict rules for the operation of interactive video terminals have already been introduced and set by the Czech Ministry of Finance.

Beyond that the technology of central lottery systems enables very easy, accurate and detailed government control because the government can directly enter the system and monitor operation of individual interactive video terminals and whole central lottery systems. State control clerks as well as the Ministry of Finance already have this access established.

Therefore we take the unsystematic intervention into the way of licensing and charging of interactive video terminals as an illogical limitation of not just technological progress but also of possibilities of effective control and regulation from the government side.

A cautionary example of biased stringent regulation of the gaming industry could be Ukraine. In an attempt to wipe out gaming the decree on suspension of licences for gaming by the Ministry of Finance of Ukraine came into force on June 7, 2009. All the contractors from the gaming sector had to shut their business overnight. But short-sightedness of this procuration has shown itself in a very short time.

Gaming machines and other equipment disappeared from existing sites; nevertheless companies did not close their businesses. Respectable contractors with good reputations and a responsible approach to the performance of their duties left the market, but their place has been taken over by grey economics.

Arcades were rebuilt to feigning internet cafés, where customers pay for "connection to the internet" and then play their favourite games. But this time, they are playing games supplied by foreign operators over the internet without any regulation and the government has been left with nothing.

The atmosphere of prohibition is a breeding ground for another boom of irresponsible gaming; connected grey economics operating illegally then gives the room for growth in crime. We can see the same deterrence example in Russia as well.

We believe that the Czech Republic, unlike these deterrence examples, will find a reasonable solution of rules for gaming and that the government and gaming companies will find a sensible compromise, which will create a transparent and fair background.

 

First published December, 2009