The European Gaming and Betting Association (EGBA) has cautioned Denmark over increasing online gambling tax to 40%, arguing that the exorbitant rate could push many gamers to seek alternatives offshore.

According to H2 Gambling Capital, an intelligence and research firm, introducing the new tax could lead to a 25% drop in the share of licensed gaming operators in the country, leaving fewer viable picks for players.

Denmark, long-touted as the only country to fully comply with pan-European gambling regulatory norms, is trying to lead the way in establishing a safe and secure online gambling environment.

The Increase Won’t Lead to Bigger Tax contributions

To achieve this, Denmark has seen fit to propose a 40% increase on current gambling revenue, helping it boost other sectors that could use the funding. However, H2 Gambling Capital’s research into the move also considered other proposals that outline a scenario where the current tax rate of 20% increases up to 28%.

According to H2 Gambling Capital this would not be the best move to make, as even a slight increase would fail to justify itself. Put this way, hiking the tax would not lead to bigger gains to the state coffers as the withdrawal of licensed operators and players will effectively reduce the total amount contributed by the industry.

Empowering the Offshore Market

Boosting tax presently would lead to an 80% increase in the offshore gaming market, achieving the opposite of what proposals are hoping to attain in the long-term. Players will eventually also leave as squeezed online gambling sites will have much smaller budgets to conduct marketing campaigns and invest in player retention and engagement.

Commenting on this move, Maarten Haijer, EGBA Secretary General, argued that there was a way a struck a balance between what was proposed as well as the country’s needs. If the taxes are too high, Haijer cautioned, though, customers will make a shift towards more competitive offshore websites instead. He further had this to add:

“If licensed companies would cut marketing expenditure to compensate for the higher tax, these reductions would quickly be filled by offshore companies, which is detrimental to the interests of the Danish treasury, the licensed gambling companies and most importantly to the protection of the Danish consumer.”

Haijer reminded lawmakers to tread carefully as the results of such a drastic decision are easily predictable but difficult to undo. Even today, an estimated 16% of all online gambling in Denmark actually takes place offshore, as those websites still find something to offer players that traditional operators can’t.

Pushing players offshore would also jeopardize the existing consumer protection measures with any self-exclusion programs falling through. If the government needs to increase the gambling tax in 2021, H2 concludes that any such increase shouldn’t exceed 22% of the gross gambling revenue.