Tens of billions “in the shadows”: How much taxes does the state not receive from gambling?

In conditions of a full-scale war, the state forced the gambling business to start paying taxes. However, the profits of online casino operators are growing, including thanks to military personnel, and tens of billions of hryvnias still remain “in the shadows” and do not reach the state budget.

We continue the series of materials about shadow schemes due to which the budget is losing hundreds of billions of hryvnia. For previous materials about why no one can find the manufacturers of illegal cigarettes, where three annual budgets for the production of drones are hidden, and about schemes involving the export of “black grain” worth billions of US dollars, read the link.

Last month, the rapid spread of gambling, primarily among the military, became a matter of concern for the Office of the President. President Vladimir Zelensky, by decree, put into effect a separate decision of the National Security and Defense Council, designed to ban military access to online casinos and limit gambling advertising.

Legal players in the gambling market claim that they pay taxes.

Indeed, in the third year after the legalization of gambling, which was one of Zelensky’s election promises, the state budget began to receive significant revenues from this decision.

According to the Commission for the Regulation of Gambling and Lotteries (CRAIL), in 2023 the gambling business paid UAH 10.4 billion in taxes to the state budget, not counting license fees. This is 14 times more than in 2022. However, this is seven times less than it should be.

How did legal players underpay taxes?

At the beginning of the second year of a full-scale war, the legal gambling business had to partially emerge from the shadows. At the beginning of February 2023, Vladimir Zelensky signed a law that repealed the norm adopted back in April 2022, which allowed the gambling business to use a simplified taxation system, paying only 2% of the single tax.

Chairman of the Verkhovna Rada Committee on Finance, Tax and Customs Policy Daniil Getmantsev admitted that due to the introduction of tax incentives for the gambling business at the beginning of the Russian aggression, the state lost billions of hryvnia. At the same time, the key problem of the gambling business, according to Getmantsev, was not even the benefits that he enjoyed for almost a year, but the systemic evasion of taxes using electronic payment technologies.

The National Bank dealt a blow to these schemes in March 2023, depriving a number of financial companies and Ibox Bank of their licenses due to involvement in a criminal tax evasion scheme by the gambling business.

The state-owned Ukrgasbank was also suspected of involvement in such schemes, but in this case the National Bank limited itself to a significant fine, and the head of the bank, Andrey Kravets, resigned immediately after the publication of this information.

According to the Supreme Council of the Verkhovna Rada on Economic Security, thanks to the involvement of banks in schemes with “miscoding” (substitution of the purpose of payments), the gambling business during the war was able to bring about 10 billion hryvnias of turnover per month “into the shadows”.

As BusinessCensor wrote, tens of billions of hryvnias, from which taxes were not paid, were transferred abroad by the gambling business during the war through operations for the export of “black” grain or cryptocurrency.

After the state managed to significantly limit these opportunities, the payment of taxes by representatives of the legal gambling business increased sharply.

However, it would have to be significantly larger.

How much tax would a legal gambling business have to pay?

What taxes do legal players have to pay?

• Income tax
• Income tax
• Personal income tax and military tax on winnings
• Personal income tax and military tax on employee salaries

According to the tax code, in addition to income tax, legal players must pay 18% of the income received from activities in the organization and conduct of gambling (for organizers of gambling in slot machine halls, a rate of 10% is established), reduced by the amount of payments paid to players.

At the same time, the gambling organizer must withhold and transfer to the state budget 18% personal income tax and 1.5% military tax on player winnings.

According to the National Bank, published by the Chairman of the Committee on Finance, Tax and Customs Policy Daniil Getmantsev, the volume of non-cash transactions in the legal gambling segment in 2023 increased by UAH 83 billion, and the total turnover increased to UAH 207 billion.

“These data reflect the volumes provided by payment service providers who served licensed gambling and lottery operators, and include both non-cash transactions under code 7995 (transactions related to gambling, lotteries and bookmakers - ed.) cash transactions,” the National Bank explained in response to a request from BusinessCensor.

That is, UAH 207 billion is the total turnover of only legal players in the gambling market. Consequently, taking into account income tax and taxes on winnings, gambling organizers had to transfer to the state budget at least 18% of the total turnover - UAH 37.3 billion. In addition, gambling businesses and bookmakers had to pay income and salary taxes and withhold a 1.5% military tax on winnings.

However, even taking into account other taxes, only UAH 10.4 billion, or UAH 26.9 billion less, came into the state budget from the gambling business, noted Getmantsev’s colleague on the tax committee, Nina Yuzhanina. Taking into account the military tax that would have to be withheld from winnings, this amount would have to be even higher.

However, in the first months of last year, the state itself allowed the gambling business to pay less taxes, delaying the abolition of the ability to pay only a single tax in the amount of 2% of income. In addition, only in August 2023, the Verkhovna Rada returned the tax on gross gaming income for online casinos (the so-called GGR tax) to 18%. Previously, imprecise language in the Tax Code allowed them to evade paying this tax.

What's wrong with taxation of winnings?

Chairman of KRAIL Ivan Rudy assures that gambling organizers return 70-80% of the funds received from players in the form of winnings, which must be taxed.

But it is impossible to verify this, because the State online monitoring system provided for by the law “On state regulation of activities related to the organization and conduct of gambling” has not yet been created. This system would provide real-time control of information about all bets and paid winnings.

Only on April 17 of this year, KRAIL announced a tender for the development of technical and design documentation for the creation of an online monitoring system; when it will start working is still unknown. The head of the regulator, Ivan Rudy, explained that funds for the creation of the system itself have not yet been provided due to the war.

Problems with the taxation of winnings are confirmed by the Bureau of Economic Security (BEB), which suspects one of the largest players in the gambling market, the Cosmolot company, of tax evasion.

According to the investigation, the company paid players 4.5 billion in winnings, from which it did not pay personal income tax and military duty for a total of 1.1 billion UAH. What complicates the investigation of the case is that without an online monitoring system, detectives have to analyze more than 5 million bank transactions of the gambling operator.

In addition, the SBI is investigating a case against online casino operators Pin-Up and Vbet. Among other things, they are also accused of tax evasion and money laundering.

All three of these companies were among the top five largest gambling companies in Ukraine at the end of 2023.

Senior Economist at CES Yuriy Gaidai notes that in 2024, the legal segment of the gambling business continues to grow, and tax revenues from it reached UAH 1.7 billion per month. At the same time, the amount of taxes withheld by operators from winnings, on the contrary, is falling.

“The growth is due to the payment of tax on gross gaming revenue, while the personal income tax on winnings paid is stagnating after the peak a year ago and does not at all correspond to the real volumes of the market,” the expert states.

How much does the budget lose due to the illegal gambling market?

According to the head of CRAIL, Ivan Rudoy, ​​the legal gambling market consists of 13 legal entities that operate on the ground and 17 on the Internet.

“The illegal gambling market consists of more than 600 sites (these are only those that KRAIL knows about and for which, together with law enforcement officers, we are working to block access on the territory of Ukraine),” the official notes.

As of May 16, the list of illegal sites published by KRAIL included 264 domains, the owners of which were sent requirements to restrict access on the territory of Ukraine. However, a significant part of them still continues to work. Only on May 15, the National Commission for State Regulation in the Field of Electronic Communications (NCEC) recommended that providers of electronic communication networks block 242 gambling sites from the CRAIL list.

According to the Ukrainian Gambling Council, an association of legal players in the gambling market, the number of illegal gambling sites is even greater - more than 1,200, of which at least 300-400 have connections with the Russian Federation.

Estimates by legal market players and the Center for Economic Strategies indicate that at the end of last year, about 50% of the gambling business continued to remain “in the shadows.” That is, due to illegal bookmakers and online casinos, the state budget is losing approximately another 37 billion UAH.

Taking into account the fact that legal businesses would also have to pay almost 27 billion UAH more, in general, potential losses to the state budget from unpaid taxes in the gambling business can be approximately estimated at 64 billion UAH.

For comparison, the state budget for 2024 provides 44 billion UAH for the purchase of drones; for this amount, they are tentatively planning to purchase 1 million UAVs for the Defense Forces. At the same time, Ukraine could produce twice as many drones, but there is not enough money to purchase them, admitted Deputy Prime Minister Mikhail Fedorov. If the state were able to collect taxes from the gambling business, funding for the purchase of UAVs could be increased by 2.5 times, loading the capacity of Ukrainian manufacturers.

According to the Chairman of the Tax Committee of the Verkhovna Rada, Daniil Getmantsev, this problem should be at least partially solved by bill N9256-d, which is planned to be considered in parliament in the near future. Among other things, they are asked to strengthen control over the activities of legal gambling operators, as well as significantly expand the mechanism for blocking illegal gambling sites. In addition, they plan to introduce restrictions for players and ban sponsorship and advertising of gambling.

However, so far government regulation has not kept pace with the rapid development of the gambling business, and the state budget is losing tens of billions of hryvnias in potential tax revenue during the war.