Sin Taxes in Focus: How High Levies are Transforming the Gambling Market

The taxation of so-called vices is not a modern phenomenon. Even Pope Leo X partially funded his opulent Renaissance lifestyle through taxes on prostitution in the Holy City. Today, alcohol, tobacco, and especially online gambling are in the crosshairs of tax authorities. The logic is simple: the state generates much-needed revenue while simultaneously curbing the consumption of harmful goods through high prices or reduced attractiveness. However, the reality in 2026 shows that this plan does not always work. Especially in the digital gambling sector, excessive tax burdens often lead to an unintended side effect: players fleeing to illegal providers without any protection.

In the current global landscape, we see a massive discrepancy between the approaches of different nations. While some countries specifically use revenues for social welfare, others struggle with the stability of their regulated markets. The debate is heated, as the industry warns of a collapse in channeling rates if levies exceed the 40 percent mark. Nevertheless, examples from South America and the US show that high taxes do not necessarily mean the end of a market, provided the framework conditions are right.

Numbers and facts

A look at concrete data illustrates the dimensions. In Colombia, since 2022, over COP 4.01 trillion—equivalent to just under one billion British pounds—has been raised for public healthcare through gambling taxes. This occurred under the supervision of the national regulator, Coljuegos. In contrast, in the Netherlands, the tax was incrementally raised from 30.5 percent in 2024 to 37.8 percent this year. Including an additional 1.95 percent levy, the total burden is now nearly 40 percent. The Dutch regulator KSA reported that while they expected €108 million in extra revenue for 2025, they actually only collected an additional €2 million.

In the United Kingdom, the remote gaming tax was nearly doubled in the last budget from 21 percent to a massive 40 percent. The government's goal is to fund child welfare measures. This is one of the most significant fiscal changes the British market has ever seen. Nonetheless, the Gross Gambling Yield in Britain grew to £16.8 billion in the 12 months leading up to March 2024, representing a 7.35 percent increase.

Background

The primary argument against high sin taxes is so-called offshoring. When legal providers are forced to lower their odds or cut bonuses due to the tax burden, players migrate to unregulated platforms. Rob Wood, CFO and Deputy CEO of Entain Group, warned in an open letter against repeating the mistakes of their Dutch neighbors. He sees a direct connection between tax increases and the growth of the black market.

"We shouldn’t repeat the mistake of our Orange cousins." - Rob Wood, CFO at Entain Group

Interestingly, some scientific research contradicts this industry narrative. A 2024 study analyzing 29 European markets found no strong evidence of a correlation between high taxes and declining channeling. In fact, one model suggested that player retention in regulated markets might even be highest at tax rates between 28 and 37 percent. New York serves as a prime example: despite a 51 percent tax on sports betting, the state remains the largest market in the US.

Why it matters for German players

For German players, this discussion is of central importance, as Germany has already taken a very strictly regulated path with the State Treaty on Gambling 2021 (GlüStV 2021). The 5.3 percent turnover tax on online slots and poker in Germany is often criticized because it is deducted directly from stakes rather than gross revenue. In practice, this leads to lower Return to Player (RTP) rates in legal GGL casinos compared to MGA or Curacao providers.

Players must adhere to the strict deposit limit of 1,000 euros per month, monitored via the central LUGAS system. Additionally, a 1 euro per spin stake limit applies to virtual slot games. A further increase in the tax burden, as observed in other European countries, could further increase pressure on legal German operators. This would raise the risk of German customers increasingly attempting to bypass blocking systems like OASIS to find more attractive but unsafe conditions on the black market.

What it means for GGL-licensed casinos

Casinos with a license from the Joint Gambling Authority of the States (GGL) face the challenge of remaining competitive despite high levies. While tax money in Colombia funds hospitals, in Germany, it also serves to cover the costs of the LUGAS monitoring system and addiction prevention. Providers must make it transparent that the levies flow directly into player protection.

Bill Miller, President of the American Gaming Association, emphasizes that the gaming industry often pays higher taxes than any other industry in the respective US states. For German GGL providers, this means they must emphasize the value of the license. Only in a licensed casino is it guaranteed that winnings are paid out legally and youth protection is maintained. However, the comparison with the Netherlands shows that the GGL and the German treasury must closely monitor the limits of fiscal burdening to avoid jeopardizing the channeling rate.