Gambling in Ukraine: to Be or Not to Be?

Ban and Financial Losses

According to the law adopted in 2009, gambling is prohibited in Ukraine. The country has lost billions of hryvnias for seven years. However, it's no secret that underground gambling clubs keep working. Law enforcement officials close several thousand clubs yearly, seizing thousands of units of gambling equipment, millions of dollars, and hryvnias. Nevertheless, every time gambling houses reincarnated and rose from the ashes. Their number has not decreased.

For example, law enforcement officials found more than 560 gambling organizations and seized almost 400,000 hryvnias of profit from illegal activities only in Kyiv in 2016.

However, these amounts are nothing compared to the money that Ukraine has lost over seven years as a result of the law on the gambling ban. Arsen Avakov, the Minister of Internal Affairs of Ukraine, reported on his Facebook page that, according to his calculations, the state could have obtained about 300 million dollars from its treasury from the moment of the gambling ban.

Such losses are connected with lawmakers creating a loophole in the legislation for illegal operators seven years ago. They provided neither definition for lotteries nor mechanisms of their regulation. So, in big cities and small villages, you can easily find illegal halls of slot machines, existing under the signs "Lotto" or even "State Lottery." They are everywhere. By the way, the new Law of Ukraine, "On State Lotteries," was adopted only three years after the complete prohibition of gambling.

Thus, the illegal market of gambling in Ukraine has not disappeared. It seems to be a clear example that the complete prohibition of this business leads to even worse consequences than its limited existence in the framework of the current legislation.

What Does One Want from Legalization?

It's no secret that the gambling business is flourishing, even considering the adoption of the law "On Prohibition of Gambling Business in Ukraine." It has not disappeared. Instead, it has just withdrawn into the shadows. Gambling clubs are masked and exist under the sign of lotteries since this kind of business is very profitable. Even though illegal gambling activities are punished by a reasonably significant penalty whose size varies from 10 to 40,000 non-taxable personal income minimums, such corrections are insignificant compared with the obtained incomes.

1. By making the gambling business legal, the legislators of Ukraine primarily hope to take control of each type of gambling and draw the line between lotteries, slot halls, and elite casinos.
2. Secondly, the legalization of gambling will allow the state to obtain considerable profit from the activity of gambling houses. Thus, Yuriy Kozhema, the Chairman of the Kyiv Union of Gambling Enterprises, reported that the state budget at different levels could annually receive over 2 billion hryvnias from casinos only.

By the way, the strategy to make a profit and replenish the state budget at the expense of fans of gambling is common in many countries. For example, in France, elite casinos in resort towns should pay no more than 80% of annual revenues to the treasury. In Finland, the percentage is 70%. Moreover, these funds support unprotected layers of the population, including orphans and prisoners. In Estonia, traditional poker rooms must pay the state 20% of the annual income.

Battle of Draft Laws

Thus, gambling legalization in Ukraine was in the air, so this issue should have been considered sooner. The country needs money! Thus, Alexander Danylyuk, the Minister of Finance, said he would support any draft law that the Verkhovna Rada would pass.

It turns out that there are a few options. About 30 draft laws related to gambling, casinos, and lotteries have been registered in the Verkhovna Rada for seven years since the appearance of the gambling ban. Committees have already analyzed some, some have withdrawn, and others have been blocked by the anti-corruption expertise, in particular, due to the lack of a precise definition of the term "lottery" and the mechanisms of its operation.

Bill 1571, offered by Arseniy Yatsenyuk's Cabinet of Ministers, seemed to be the most reasonable. According to it, gambling halls, casinos, and other gambling establishments had to be legalized on the state's territory (in detail, this draft law is discussed in the article "Gambling Industry: is Ukraine Getting Back in the Game?"). However, it did not pass the committee discussion, so it was withdrawn from consideration by the Verkhovna Rada.

Now three newer draft bills are being considered by the committees.

The First Bill

The first project was initiated by the independent deputy Borislav Bereza in January 2015. The future law only regulates card games, dice, roulette, and slot machines. It is worth noting that each gambling game mentioned above can be played only in a specially designated casino area whose total building area must be at least 1500 sq.m.

As for sports betting, bookmakers, and state lotteries, Bereza's bill provides no information about their regulation. However, the draft law allows gambling companies to operate via the Internet without specifying what kind of activity it is.

According to the draft law, gambling operators must issue entrance tickets to all casino visitors. The price of one key has to be at least 100 non-taxable personal income minimums (not less than 1700 UAH in December 2016).

In addition, operators have to take measures to combat gambling addiction, i.e., at least to provide information about it. Besides, casino owners will also have to pay monthly 1000 non-taxable minimums (17,000 UAH) as an additional payment for each gaming table or slot machine in the gambling establishment.

The Second Bill

It was initiated in September 2015 by Andrey Nemirovsky, who represented "Self Reliance," offers to divide games of chance into:

• Cards;
• Dice;
• Roulette;
• Betting;
• Sports betting;
• Games for virtual casinos.

At the same time, any TV/radio game in which participants are required to pay money for participation isis banned, and the prohibition of playing slots are offered. This draft law does not regulate online gambling.

It is also surprising that in Nemirovsky's project, sports and charity games are allowed to organize only in casinos. And if the legislators consider billiards and bowling sports games, they have no idea what should be treated as charity games.

This project is planned to create a special gambling zone in the Kherson Oblast. In addition, the territory of four- and five-star hotels belong to such a zone. The smallest domain a casino can be located in is 500 sq.m.

According to this law, Local authorities can set fees for casino owners. In general, the funds paid by casino owners for licensing and deductions for the games will be transferred to the state budget.

The Third Bill

The draft law,  "On Deshadowing of Gambling Market in Ukraine," which implies the legalization of the gambling business in Ukraine, was initiated in June 2016 by Igor Molotok, who represented "People's Will." It offers the following types of gambling:

• Games in betting offices and bookmakers;
• Games at casinos;
• Production and carrying out of state lotteries;
• Games of chance in online systems on the Internet.

It is allowed to open only one casino per 300 000 people in any regional center and one casino per Oblast per 500 000 people outside the regional center. The minimum area provided for the casino should not be less than 1000 sq.m. Gambling operators are allowed to pay out money or take money from gamblers only at a particular cash desk.

Casino owners that do not have a license will have to pay a fine of 2 thousand non-taxable minimums (about 3 million hryvnias) and give all the profits to the state budget of Ukraine. It is worth noting that according to this draft law, taxes from gambling will be provided for the development of the economy, social and cultural projects, and the result of sports.

Bills' Pros and Cons

All three draft laws allow gambling and those who have reached the age of majority to provide licensing of each gambling establishment, creation of notable monitoring organizations, and state registers of gambling operators.

The main goal of the bills mentioned above is not only the legalization of gambling but also the appropriate monitoring of this sphere. The obligation of control over gambling as a whole and full receipt of taxes on such activities is placed upon the Cabinet of Ministers and monitoring organizations via the electronic system of gambling state monitoring.

To put it simply, new bills offer the following system of the gambling business:

• To obtain a license,
• To register a game of chance (in the Catalogue of State Lottery, the Catalogue of Organizers of Gambling Games, Betting Activities, etc.),
• To install software to provide monitoring via transmitting data on bets made by customers, payouts to the monitoring organ on the Internet,
• Payment of taxes on revenue to the state budget.

The scheme seems quite transparent and precise, in particular, thanks to monitoring via the electronic system. This is an obvious advantage since it diminishes the influence of the human factor. After all, it is easier for humans to pay less than for an electronic device, but remember that people still manage electronic systems.

Nowadays, the committees of the Verkhovna Rada are actively discussing various aspects related to the activities of the gambling business, for example, prices of licenses, tax sizes for business entities, trends in the development of the gambling industry, individual taxes for winners, and ways to assess the level of services at hotels.

Online Gambling Monitoring

Market experts also believe that the uncontrollability of the gambling business, apart from the detrimental impact from the fiscal point of view, also devastates society's moral and psychological state. So, the lawyer Zoryana Toporetskaya argues that, from the point of view of problem gambling, online gambling is one of the most dangerous activities along with slot machines.

Unregulated online gambling allows customers to gamble anytime and anywhere and bet any amount. This leads to the rapid development of gambling addiction. We put citizens at risk. And the state, which should control this dangerous activity, does nothing in this direction.

In addition, in her opinion, free access to gambling sites can destroy legal gambling operators. Competing with those who do not pay taxes at all is difficult. While an operator whose activities are legal pays high taxes and, as a tax agent, has to deduct 19.5% from any winning. Zoryana Toporetskaya believes that Ukraine could at least start blocking illegal gambling resources like it is done in any developed country.

But Grigory Tripulsky does not see anything negative in online gambling activity.

Try to open a browser and bet on any sporting event. Believe us, it will be very simple. And no one will pay taxes on this bet. Therefore, this is the legalization of things that already occur. There is nothing terrible and detrimental in it. This will only contribute to the legalization of this branch of the industry.

Gambling Experts' Opinions

Analysts reckon that the legalization of gambling in Ukraine should take place to the models that exist in Europe. And when gambling is not legalized, the state loses its revenues.

The state's task concerning the gambling business is not to develop it as any other branch like agriculture or heavy industry but to satisfy the minimum demand for games of chance. The common practice is to limit the number of gambling operators, especially for popular games of chance: lotteries, slot machines, and sports betting. The state determines the maximum number of operators and provides fair competition. The best ones are chosen depending on their financial offers. The winners can offer games on a certain territory for a long time, for instance, ten years. Therefore, limiting the number of establishments providing access to such games is necessary. Or it is not. However, in any case, only one or several operators should offer games of chance in a certain country. This is the normal situation. In Ukraine they do not want to consider this practice and offers to open the market for everyone or invite some foreign operators.

For example, a new draft law offered in May 2016 opened the gambling market. It is assumed that the maximum number of betting operators will be ten in addition to two lottery operators and numerous casinos. Therefore, the entire territory of Ukraine turns into a gambling zone. The most controversial issue is that this draft law allows online gambling. Why actually? Some countries practice restricting online gambling by blocking sites, offering such games, and prohibiting gambling for online gamblers. In Ukraine, everything that is not banned is allowed. If you have a betting license, you can do anything! The law has many loopholes, so it still needs to be upgraded,

- says Danylo Getmantsev, Honorary President of Jurimex Law Firm, TaxLink expert, President of Tax Advisors Association, and European Association of Tax Law member.

An expert in the field of gambling, Grigory Tripulsky, an Executive Partner of the consulting company "De-Yure," agrees:

I believe that budget revenues will surely be substantial. To be sure, I do not think that they will raise the country's economy to a new level, but we are talking about quite a huge amount. Once upon a time, we believed that the legalization of the gambling market could bring about 1% of the country's budget. It is difficult to confirm such assessments since I have not analyzed the numbers. However, the fact that there are several competing draft laws is promising. The normal law has been unable to be passed for six years. And de facto, there are underground gambling establishments and betting offices. This stimulates the prosperity of corruption, and the budget obtains nothing.

Conclusion

Any gambling business, except for state lotteries, has been banned in Ukraine for eight years, but this does not help much. Underground gambling establishments do their best to mask their activities. They act as computer clubs, poker rooms, and even under the guise of State Lottery. They also operate in nameless "offices," rented cellars, and apartments.

The complete ban, initiated by Yulia Tymoshenko when she was the Prime Minister, did not help. Gambling only went into the shadows, and the budget lost guaranteed income. Considering this, it becomes evident that the state needs to reconsider its attitude towards this kind of entertainment. The legislative regulation of this sphere is necessary. However, only strict licensing and huge fines can make this industry a source of revenue for the state.

It's no secret that a powerful lobby exists in the parliament and among regulating authorities. After all, gambling is an excellent source for the illegal enrichment of some law enforcement officers, prosecutors, regulators, and officials. They do not benefit from the legalization of gambling and do their best to prevent it. And it can continue for a long time since they have the opportunities.

However, there is good news. Given that Ukraine depends on the loans of the International Monetary Fund, the country is obliged to fulfill agreements with the IMF. Otherwise, it should forget about new credit tranches. The Ukrainian authorities used to have disagreements with the IM. Still, in March of this year, they finally agreed on the third revision of the memorandum on economic and financial policy. And one of the paragraphs of this memorandum is the obligation of Ukraine to abolish the ban on gambling until the end of 2018. So, fans of gambling should not wait for a long time.