In December 2021, the Parliament of Georgia reviewed and adopted a legislative package on amendments to the legislation regulating the gambling business in an expedited manner, according to which the requirements for actors involved in the field of games of chance and prize games have significantly hardened.
According to the authors of the legislative proposal, the need to develop the above-mentioned regulations was conditioned by the high public interest of the society in the field of gambling business. Pursuant to them, it was crucial for the state to introduce mandatory regulations and the implementation of measures in order to ensure the protection of public interests and improvement of the social background.
The present blog reviews the major changes laid down in the gambling legislation. Some of the changes have been in force since January 01, 2022, while some will take effect starting from March 01, 2022.
The new regulations will enter into force in the Law of Georgia “On organising lotteries, games of chance and prize games” from March 01, 2022, which will define new statuses such as “game addict” and “prohibited person”. The mentioned persons will be prohibited to participate in games of chance and prize games (except for promotional games) or to enter the venue of arrangement of games of chance and prize games for playing. As a result of this prohibition, which also applies to online gambling, approximately 1,000,000 individuals will be banned from participating in gambling.
For the purpose of clarification, games of chance refers to games whose outcome fully or partially depends on a chance event (e.g. online games of chance). Such games may be played by means of gaming machines, roulette wheels (roulette), gaming tables, card tables and/or other gaming equipment. As for winning games, they shall include: Lotto, Bingo, Betting and Promotional games.
“Game addict” as a natural person who has an irresistible desire and dependence on games of chance and prize games (except for promotional games), will be included in the so-called list of Game addicts. While the status of “prohibited person” in the gambling business will be granted to the persons employed in the budgetary organisation, civil servants, public servants, government and political officials, also employees of the National Regulatory Authority and the National Bank of Georgia, family members registered in the unified database of socially vulnerable families.
The list of game addicts and the list of prohibited persons will be maintained by the Revenue Service of Georgia and the latter will have a constantly updated database. Only data on Georgian citizens will be allowed in the list of game addicts and the list of prohibited persons.
Data on a person shall be included in the list of game addicts: a) on the basis of the application of a person himself, who submits an application to the Revenue Service for inclusion of his/her data in the list of game addicts; b) on the basis of a judge’s order, in accordance with the Administrative Procedure Code of Georgia. It is interesting that a person’s family member, in particular his or her parent, spouse, son/daughter, or a person permanently residing with him/her, will have the right to apply to the court and request a person’s data to be included in the list of persons addicted to games of chance and/or prize games on the basis of the submission of appropriate evidences.
Data on a person shall be included in the list of game addicts for a period of 5 years. The person will be removed from the list ahead of time, in case of termination of Georgian citizenship, as well as on the basis of a judge’s order, not earlier than 3 years from the inclusion of data about the same person in the list of game addicts.
Admission to the place of arrangement of gambling for playing and/or for participation in gambling of a person included in the list of game addicts and/or persons in the list of prohibited persons, in its turn, will result in a fine of 10,000 GEL for the organizer. Repeated violation of the above mentioned infringement will result in a fine of 20,000 GEL.
Legislative novelty envisages raising the age limit of players for participation in games of chance and prize games. In particular, the current legislation prohibits a person under the age of 18 from entering the slot clubs and the venues of arrangement of winning games (other than promotional games) and/or participation in games, including online games of chance. In addition, a person under the age of 21 is prohibited from entering a casino and/or gaming club and participation in a gambling.
Due to the changes, from March 01, 2022, the mentioned age limit will be increased and Georgian citizens under the age of 25, foreign citizens and stateless persons under the age of 18 will become subject to the ban. Accordingly, a citizen of Georgia under the age of 25 will not be able to enter for playing the place of arrangement of games of chance and/or prize games (except for promotional games) and/or participate in a gambling. The mentioned prohibition involves online gambling as well.
The amount of the fine imposed on the organizer for admitting a person to participate in games of chance and prize games with violation of the age limit will be increased to GEL 10,000 instead of GEL 5,000, and the recurrence of the violation will result in a fine of 20,000 GEL.
As a result of the above restrictions and prohibitions, the organizer of the gambling will be obliged to control the age limit and status of a player in the place of arrangement of games of chance and/or prize games (except for promotional games), including in the case of arranging gambling in the system-electronic form. The organizer shall ensure the accounting of information about the persons entering the venue of arrangement of gambling in accordance with the rules established by the Minister of Finance of Georgia and for the purpose of supervision of a person’s age entering the place of arrangement of the gambling, shall require the provision of an identity document or other official document confirming the person’s identity.
In addition, in case of arranging online games of chance and/or prize games (except for promotional games), the organizer must re-verify a person annually from the day of the player’s verification and also, not to allow the player to transfer/move funds to the other player’s gambling accounts.
According to the current legislation, advertising of games of chance and/or prize games on the territory of Georgia is not prohibited and its distribution is equally accessible to any person. It is governed by general standards and legal requirements laid down by current legislation with regard to the advertisements.
The current legislation at this stage only provides for a restriction, according to which the broadcaster is obliged not to place a program unsuitable for a minor under 18 years of age in the broadcasting network between 6 AM to midnight. In particular, a program (announcement) is considered inappropriate for a minor under 18 years of age, if it contains: a scene depicting gambling, information contributing to its popularisation and promotes participation in gambling by creating the impression of gaining easy profit.
However, from March 01, 2022, in the Law of Georgia “on Broadcasting” and the Law “on Advertising” will take effect the provisions, according to which any person will be prohibited from distribution of advertisements about games of chance, betting, lotto, bingo, about the organizers of games of chance, betting, lotto, bingo, in any form or means of advertising, including with the use of electronic communication network, except for the exceptional circumstances laid down by the legislation. In addition, special rules for placing banners containing advertisements about gambling and its organizers will be set forth. Among them, it will be prohibited through broadcasting to advertise games of chance and prize games (except for promotional games), their organizers, sponsorship announcement and placing a product (goods/services) in the program in respect of.
Exceptions include the cases when the advertisement is distributed on the place of arranging sports events, sports competition and place of activity of a sports organisation as an exchange condition for sponsorship of their activities. However, such advertisements will be allowed only in visual form, on the inner perimeter of a venue for arranging sports events or sports competition, by placing a banner or by placing it on a player’s uniform.
The amendments also prohibit the distribution of promotional games in any form or by any means, including through the electronic communication network, if the permission to organize a promotional game is issued to the organizer of games of chance, betting, lotto or bingo, except for cases set by the legislation.
From March 01, 2022, violation of the above mentioned prohibitions and rules will result in a fine of 10,000 GEL, and in case of re-violation – in the amount of 20,000 GEL. Besides, the non-elimination of the grounds for incurring the fine within 1 week after the imposition of the administrative penalty will lead to the tripling of the imposed sanction.
According to the amendments to the Tax Code of Georgia, the taxation regime for persons organising games of chance in the system-electronic (online) form has been changed in relation with the income tax and profit tax. As a result of the introduction of this regime, the tax burden on operators arranging games of chance in the system-electronic form has increased due to increasing the taxable base of the sector’s taxes:
Starting from January 01, 2022, changes entered into force in the legislation, that independently defined the “Excisable Object” (object of taxation) for income and profit taxation with regard to the individuals and legal entities arranging online games of chance and the tax rate, in the field of organising games of chance in system-electronic form.
In particular, under the new regulations, in the business segment of arranging games of chance in the online form in this part of the activity, the excisable object of the profit tax instead of distributed profit shall be the difference between the bets (stakes) received from the players and the winnings (profit) issued to the player – the so-called GGR (Gross Gaming Revenue). Individuals who earn income from organising games of chance in system-electronic form in the field of this activity are also subject to the mentioned new taxation system.
The tax rate for this type of business has also changed: as a result of the changes, in the field of arranging games of chance in system-electronic form the so-called GGR as the taxable object of profit/income tax shall be taxed at the 10% rate, which amount shall be directed to the state budget by the taxpayer on a monthly basis. While, before the legislative changes profit/income tax used to be calculated at the rate of 15%/20%, respectively, from the distributed profit in the case of legal entities and from the difference between income and expenses in the case of individuals (such as individual entrepreneurs). In more details, the pre-existing reporting period was reduced from a calendar year to a calendar month in the case of individuals. While, with regard to companies, if under the old tax system they only had to pay profit tax in case of distribution of the profits to partners, now their tax accountability has also become mandatory on a monthly basis.
Let’s discuss using the simple hypothetical case, how taxes would be levied on a company under the old and new tax systems when arranging games of chance in system-electronic form. For instance, the bets received by the gambling organizer company in 2021 amounted to GEL 1,000,000, and the winnings issued to the players amounted to ½ of the bets received, respectively, the operating income for the gambling organizer for the reporting year amounted to GEL 500,000. Let’s suppose that the mentioned income was distributed by the company in the following manner and amounts: GEL 200,000 was paid by the organisation as salaries, GEL 100,000 was reinvested, GEL 100,000 was distributed to the company partners and GEL 100,000 was left on the company’s account.
Under the old tax regime, the object of taxation would be the profit in the amount of GEL 100,000 distributed to the partners only, while the amount of profit tax according to the 15% rate will equal to GEL 15,000. However, if the company did not issue a profit to its partners, it would not have to pay profit tax at all until distribution would not take place.
In compliance with the new taxation scheme, if we consider the same data, within the scope of a calendar year, the object of taxation with the company profit tax will be the difference between the bets received and the issued profit, i.e. GEL 500,000 gross gaming revenue (so-called GGR), therefore the company will have to pay a profit tax of 10% of GGR, namely in the amount of GEL 50,000. However, the new taxation regime already requires payment of the tax on a monthly basis, in accordance with the amount of GGR reported during the respective reporting month.
It should be noted that the aforementioned changes to the taxation regime apply specifically to the field of games of chance when they are organised in system-electronic form. Amendments do not apply to the games of chance and prize games arranged physically, the so-called land-based games. The pre-existing regime of taxation of an individual’s/entity’s income/profit received from arranging betting as a prize game in system-electronic form has not been changed.
In addition, the excisable object of income tax for the person participating in the games of chance or/and prize games organised in a system-electronic form (excluding promotional games) was determined and shall be the money which was withdrawn by the person from the gambling account of system-electronic form subject to taxation with a 2 percent income tax.
Individuals involved in the gambling business are also subject to payment of gambling business fees before the state or municipal bodies, in order to be granted the rights to operate in the mentioned business segment, which fees are differentiated according to the type of gambling business field. Among them is the gambling business fee set for organising the lottery.
In conformity with the amendments to the law of Georgia, from January 01, 2022, the principle of calculating the amount to be paid quarterly to the budget for arranging the lottery was changed: in particular, before the changes, the lottery organizer had to pay a fee of not more than 20% of proceeds received from the realisation of lottery tickets. In compliance with the newly enacted regulations, the rule for calculating the lottery fee was linked to the lottery gross income (the so-called Gross Gaming Revenue), which shall be the difference between the total cost of lottery tickets sold and the prize money. In fulfilment of the changes, the lottery organizer will already have to pay 10% of the difference between the total cost of lottery tickets sold and the prize money on a quarterly basis.
According to the definition of the legislator, the alteration of the principle of lottery fee calculation in the short-term perspective will reduce the amount of fee to be paid to the budget by the lottery organizers, which in turn will allow the lottery organizers to reinvest the saved financial resources and increase the turnover. While, in the long-term perspective, this will lead to an increase in the fee amount to be paid to the state budget by the lottery organizers.
Author of the Blog: Tamta Shamugia