Hong Kong Considers Lowering Race Betting Duty to Stay Competitive

The Executive Council of the Hong Kong Special Administrative Region on Friday approved a set of proposals seeking to reform the duty system on Hong Kong horse race wagering. The change is part of an effort to combat the illegal betting market in Hong Kong and increase the amount of revenue going to the government.

"Our proposals seek to strike a balance between the need to combat illegal horse race betting effectively, and the need to address public concerns about the negative social impact of gambling." - Patrick Ho HK Secretary for Home Affairs

The proposed system would replace the current tax on turnover with a progressive tax on gross profits and also allow the Hong Kong Jockey Club to provide rebates to high rollers who lose money with the club. Before going into effect, the Betting Duty (Amendment) Bill 2006 must first gain final approval from the Legislative Council on April 26. Under the new proposal, horse race betting duty will be imposed on the Hong Kong Jockey Club's gross profit or net stake receipts after dividends for winning bets and rebates have been taken out of the betting pool.

The progressive tax plan would apply a rate of 72.5 percent on gross profits that are less than HK$11 billion (US$1.4 billion). The rate would increase by half a percentage point for every 1 billion HK dollars up to HK$15 billion (US$1.9 billion), at which point the rate would reach its maximum rate of 75 percent.

Hong Kong's current duty system has been in place since the 1970s, when technologies like the Internet did not provide a means for unauthorized offshore bookmakers to access the Hong Kong market. The Hong Kong Jockey Club says a betting duty on gross margin rather than turnover would bring Hong Kong in line with international practice, particularly with the United Kingdom and Singapore, where it says similar measures have proven successful in increasing the competitiveness of legal operators and combating illegal gambling. The Jockey Club explains that Hong Kong is especially vulnerable to illegal gambling because its horse race betting duty rates are among the highest in the world.

The Betting Duty (Amendment) Bill 2006 would also permit the Hong Kong Jockey Club to set take-out rates and provide rebates to high-value bettors to help it compete against illegal bookmakers. The Jockey Club considers rebates on losses to be one of the main reasons punters use illegal bookmakers.

The Hong Kong Jockey Club supports the Betting Duty (Amendment) Bill 2006 and believes it may help to revive falling turnover numbers in recent years.

"The betting turnover on horse racing has fallen from HK$92.4 billion (US$11.9 billion) in 1997 to HK$62.7 billion (US$8.1 billion) last year, a decline of some 32 percent," Jockey Club Chairman Ronald Arculli said. "Much of this can be attributed to the illegal horse race betting market, which siphons away an estimated HK$50 - 60 billion (US$6.4 - 7.7 billion) a year. This significant decline affects everyone in the community since horse race betting duty has in the past typically contributed about 10 percent of total Government revenue from tax."

Dr. Patrick Ho, Secretary for Home Affairs, stresses that the intent of the Betting Duty (Amendment) Bill 2006 is not to expand gambling but to restrict opportunities to a limited number of authorized and regulated outlets.

"The underlying rationale is not to encourage gambling," Ho said. "Our proposals seek to strike a balance between the need to combat illegal horse race betting effectively, and the need to address public concerns about the negative social impact of gambling."

Arculli echoed those statements, stating, "Overall, after reform, the total amount of betting on horse racing, legal and illegal, is expected to remain largely unchanged. What these reforms will do is give us the necessary flexibility to fight illegal gambling and so help to reduce the wide range of social and criminal problems-underage gambling, credit betting, corruption, fraud, loan sharking, money laundering and organized crime-with which it is associated. These measures will enable us to regain the illegal betting dollars to Government and the community and uphold Hong Kong's commitment to regulated and responsible gambling."

The Hong Kong Jockey Club began offering legal football betting in 2003, but Arculli notes that horse race wagering turnover is about twice the size as that of football turnover and is, therefore, a much larger contributor of revenue to the government.

"It is also important to emphasize that football and horse racing are separate issues," Acrulli said. "The introduction of football betting does not appear to have been a major factor in the decline of horse race betting as racing turnover had already declined some 23 percent in the six years before football betting was authorized, and there has been no noticeable change in the rate of decline in the three years since."

The Betting Duty (Amendment) Bill 2006 also requires the Jockey Club to provide a guarantee that duty payable will not be less than HK$8 billion (US$1 billion) per year during the first three years of the system. The Jockey Club says the HK$8 billion guarantee is greater than the anticipated payments in each of the next three years if the reform is not introduced.

Betting duty on overseas bets will continue to be charged at no less than 50 percent of the prevailing duty rate, but will be based on the new system of calculation. This is intended to provide more flexibility for cooperation with other jurisdictions in the exportation of Hong Kong's racing product.

It is interesting to juxtapose the stated purpose of the Betting Duty (Amendment) Bill 2006 against a report published earlier this year by the Social Sciences Research Center of the University of Hong Kong. In March and April of 2005 the Center conducted a survey of 2,093 residents of Hong Kong to determine the extent of their participation in various gambling activities. The survey showed that horse race betting was the second most popular form of betting (Mark Six lottery is most popular), with 25.2 percent of respondents having wagered on Hong Kong horses in the last year. The most noteworthy aspect of the study shows, however, that only 0.4 percent of respondents reported having placed horse racing wagers with illegal local or offshore bookmakers within the last year.