Why Britain risks repeating a Dutch disaster by raising gambling taxes

Culture secretary Lisa Nandy recently told parliament her department had been in contact with the Treasury "to ensure that we avoid any unintended consequences of tax reform" on the gambling industry.

Chancellor of the exchequer Rachel Reeves has already signalled that the government is considering raising gambling taxes in the Budget on November 26, but she need not look far to see what the unintended consequences of such actions could be, especially when combined with a tide of tighter regulations on the sector.

Because in the Netherlands, where gambling taxes have been increased this year following a sharp tightening in regulation, the results have been calamitous.  

A market in freefall 

Analysts have described the Netherlands as a market "clearly and objectively failing in real time".

The BHA’s acting chief executive, Brant Dunshea, offered a blunt assessment recently, saying: “The Netherlands is a perfect example of the potential consequences that could be at play here.”

Brant Dunshea: 'Netherlands is a perfect example of the potential consequences that could be at play here'Credit: ScoopDyga/IFHA

So what has the double whammy of raising taxes and the sudden imposition of wide-ranging and tighter regulation done to the Netherlands market?

At the start of the year gambling tax in the Netherlands was increased to 34.2 per cent of gross gaming revenue (GGR) from 30.5 per cent. It is set to rise again to 37.8 per cent from January 1. The stated purpose was to raise extra money for the public purse – but the outcome has been the reverse.

An impact assessment by the Kansspelautoriteit (KSA), the Dutch gambling regulator, confirmed that “despite the increase in gambling tax, tax revenues have decreased”. 

The KSA said that the increase in the rate of gambling tax this year meant that "gambling providers must take measures to maintain their profitability".

It added: "This can be done in various ways, for example, by reducing costs or increasing revenue. In the land-based segment of the market, these options are limited. Therefore, the tax increase is further hampering this segment of the market in particular."

The upshot has been the accelerated decline of the retail betting sector, with venue closures now outpacing anything seen before. Here is a lesson for Britain, where bookmakers have given stark warnings about the potential for betting shop closures because of higher taxation.

As a result, tax revenues in the Netherlands have been projected to be €40 million lower in 2025 based on figures from the first half of the year, a fall of five per cent, which means government hopes of raising an additional €100m in taxes from gambling this year will not be achieved.

It has been argued that the decline in the Netherlands' tax take from gambling is as much, if not more, to do with tighter regulation, safer gambling measures and deposit limits as it is the rise in the rate of duty.

However, that is cold comfort for the industry in Britain, which has been facing increased regulation as the measures contained in the previous government's white paper have been introduced.

There is also the prospect of further measures once the Gambling Commission completes its trial of so-called frictionless affordability checks – or financial risk checks as it terms them – as well as continued calls for advertising restrictions.

A shrinking market but a growing illegal one

Even more damaging is the surge in unlicensed gambling. Last month, the KSA revealed that the black market had overtaken the licensed one for the first time since regulation was introduced in 2021.

The KSA said that GGR was €600m in the first half of the year, having been €697m six months previously.

This was partly down to player protection rules, including deposit limits introduced the previous October, the KSA claimed.

While the regulator estimated that around 94 per cent of players accessed only the legal market, it accounted for only 49 per cent of GGR, down from 51 per cent, implying a black market worth €617m.

"This downward trend may be explained by players shifting to illegal offerings due to the new player protection regulations, where these perceived restrictive rules do not apply," said the KSA. 

"The KSA considers this a worrying development, as players in the illegal market are much less well protected."

Stephen Hodgson, tax policy adviser to the Betting and Gaming Council, pointed out the effect of the Netherlands tax changes when appearing before the Treasury committee in parliament last month, saying there was "no doubt" there had been an effect after the tax rate was increased this year.

Stephen Hodgson: 'The authorities there themselves say that has had a negative impact on the number of customers in the regulated market'

He said: "The authorities there themselves say that has had a negative impact on the number of customers in the regulated market, with the knock-on consequences that has for tax revenue, which is significantly below what was forecast this year for the Netherlands."

Double trouble: high taxes and heavy regulation 

The Netherlands has shown how dangerous tighter regulation and higher taxation can be when implemented simultaneously. Analysts at Regulus Partners were unsparing in their assessment last month, saying: “A once well-regulated market is now clearly and objectively failing in real time, with clear causes and effects. 

"Tighter regulation and higher taxes are demonstrably counterproductive in terms of both fiscal and player safety outcomes.”

Regulus described the Netherlands as a "very useful policy barometer" due to major changes happening all at once and the KSA's openness, including on the scale of the black market.

They said the "big change" occurred between the third and fourth quarters of 2024, when deposit limits were brought in, causing an immediate 22 per cent drop in performance "from which the market has not recovered".

Kansspelautoriteit (KSA): Dutch gambling regulator

Regulus added: "For regulators wondering what restrictive affordability checks do when they are imposed at once on a system-wide basis rather than piecemeal over time, the Netherlands has the answer."

Regulus calculate that operators need to spend around 20 per cent of their GGR on bonusing to compete with the black market. Operators are taxed on GGR, which includes bonuses that are 'won' back, rather than the actual money they win. With tax set at 34.2 per cent, that creates a "punitive" effective tax rate of 43 per cent and a tipping point. Meanwhile, black market sites are able to bonus more generously.

"The most valuable and the most vulnerable players in the Netherlands have gone offshore due to regulatory policy, while Dutch tax policy makes it almost impossible to get them back," said Regulus.

"Because of this double-whammy of policy choices, taxes are now visibly going down while the players for which targeted safety regulation is most important are being actively exploited in the illegal market."

The example of the Netherlands shows that policy makers, in Regulus' words, "cannot have their cake and eat it". Tightening regulation and increasing taxes can lead to lower tax revenues, not higher, and a growing black market.

The international experience

The Netherlands is not a lone example of the unintended consequences of tax rises.

India provides a salutary warning of what can happen to a horseracing sector when it is hit by increases in gambling tax.

In 2017, Goods and Services Tax (GST) was introduced on any money bet on horseracing, with the rate set at an exacting 28 per cent.

Suraj Narredu celebrates a winner at the Shergar CupCredit: Edward Whitaker (racingpost.com/photos)

The result was to drive Indian punters to the black market and, according to the Times of India, send the nation's horseracing industry into a "financial crisis".

Top Indian jockey Suraj Narredu told the Racing Post in August: "The tax issues are really killing the sport."

Despite that, GST has been increased again to 40 per cent, a decision which Dunshea said at a recent conference would "have a catastrophic impact on the horseracing sector". 

At the same event Dunshea cited the example of Austria, where online gaming duty has increased to 55 per cent from 40 per cent. He said: "Growing evidence there highlights that this is driving rapid growth in black markets, where customers have fewer protections."

Conclusion

The Dutch government’s approach has delivered a perfect storm: declining revenues, business closures and a black market now larger than the regulated one. Britain, with its world-leading betting and racing industries, should view that as an unmistakable warning, not a template for reform.

Read these next:

Leading independent bookmaker warns 'there will be nothing left to tax' if gambling duties are hiked in autumn budget 

Racing faces ‘stealth tax’ if chancellor hits betting shops in budget, bookmakers warn 

Committee fails to get to grips with the nitty-gritty of gambling tax - but events may have overtaken it anyway  

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