The Home Affairs Bureau has proposed betting duty reforms to combat illegal gambling while maintaining revenue.

The bureau today told lawmakers horse racing turnover has fallen 30% from $92.4 billion in 1996-97 to $65 billion in 2003-04. Government revenue from betting duty on horse race betting has subsequently dropped from $12.3 billion to $8.78 billion. If no action is taken to tackle the decline, betting turnover could fall another 30% by 2007-08.

While the decline has been partly due to the economic downturn in recent years, it is largely due to certain structural reasons which have led to a shrinking share of authorised horse race betting in the overall gambling market.

Proposed reforms

The bureau wants to convert betting duty from the current turnover-based system to a new one based on the net-stake receipts (or gross margin - i.e. betting turnover minus payout), similar to the soccer punting system.

Under the proposal, a single set of duty rates would be applied to the net-stake receipts irrespective of bet types.

A progressive duty system would be adopted, with duty charged at 72.5% of the net-stake receipts up to $11 billion, increasing by half a percentage point for increases of every $1 billion in receipts up to $15 billion, and at 75% for receipts over $15 billion.

To tie in with the change, the distinction in tax rate between standard bets and exotic bets would be removed.

Overseas bets

For overseas bets, duty is currently charged at half of the prevailing duty rate on the relevant bet type (i.e. at 6% for standard bets and 10% for exotic bets).

Under the new system, the duty rate would not be less than 50% of the basic duty rate (i.e. 72.5%) of the annual gross margin. The duty rate may be raised in the case of individual jurisdictions to cater for the situation whereby the overseas host government does not require as high as half of the betting duty reduction as an incentive for effecting the arrangement.

To ensure Government revenue from betting remains stable during the first few years, the Jockey Club would guarantee the duty receivable during each of the four years from implementation would be no less than $8 billion plus the amount of duty in respect of any overseas bets.

The $8 billion guaranteed minimum is higher than the Jockey Club's projected duty for the year 2005-06, assuming there is no duty reform.

A review would be conducted in three years to see if it produces desirable results and whether it should be continued.

Season extension

At present there is a summer recess for the racing season in July and August. The bureau proposes to allow the Jockey Club to slightly extend the season by five days, and modestly increase the frequency of simulcasting major overseas races approved by established international racing authorities each year.

The Government feels it is unlikely the proposals will give rise to a substantial increase in public participation in horse racing. It also said the duty reforms together with those of the regulatory regime should enhance the competitiveness of authorised betting against illegal and offshore bookmakers.

The proposals will also enable the Jockey Club to capture a larger share of the gambling market by diverting more effectively the bet placed with illegal and offshore bookmakers to the authorised channel, while protecting the Government's betting duty revenue.