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In Ukraine, gambling has not been legal since 2009, when the political conjuncture destroyed the entire branch of the economy for several weeks. Companies that provided gambling services lost millions, tens of thousands of people were fired, and the state budget lost a stable source of income.

Six years later, the Ukrainian government finally admitted that this sudden and non-alternative ban on gambling created a favorable environment for corruption, contributed to the development of the illegal market and caused the outflow of billions of hryvnias from the Ukrainian economy. And in 2015, the Ministry of Finance of Ukraine started working on making the gambling business legal again.

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. Every year law enforcement officials close several thousand establishments, 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, seized almost 400,000 hryvnias of profit from illegal activities only in Kiev 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 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 to its treasury from the moment of gambling ban.

Such losses are connected with the fact that seven years ago lawmakers personally created a loophole in the legistalition for illegal operators. 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 exists and seems to be a clear example of the fact 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 taking into account 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 establishments are masked and exist under the sign of lotteries, since this kind of business is very profitable. Despite the fact that illegal gambling activities are punished by a fairly large penalty whose size varies from 10 to 40,000 non-taxable personal income minimums, even such penalties are insignificant compared with the obtained incomes.

By making the gambling business legal, the legislators of Ukraine primarily hope to take control of each of the types of gambling, as well as draw the line between lotteries, slot halls, and elite casinos.

Secondly, legalization of gambling will allow the state to obtain considerable profit from the activity of gambling houses. Thus, Yuriy Kozhema, the Chairman of the Kiev Union of Gambling Enterprises, reported that the state budget at different levels can annually receive over 2 billion hryvnias from casinos only.

By the way, the strategy to make profit and replenish the state budget at the expense of fans of gambling is common for 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 are used to support unprotected layers of the population, including orphans and prisoners. In Estonia, traditional poker rooms have to pay 20% of annual income to the state.

Battle of Draft Laws

Thus, the idea of gambling legalization in Ukraine was in the air, so that sooner or later this issue should have been considered. The country needs money! Thus, Alexander Danylyuk, the Minister of Finance, informed that 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 gambling ban. Some of them have already been analyzed by committees, some of them have withdrawn, and the others have been blocked by the anti-corruption expertise, in particular, due to the lack of the clear definition of the term "lottery" and the mechanisms of its operation.

The bill 1571, offered by the 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 territory of the state (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 discussion in the committees, so that it was withdrawn from consideration by the Verkhovna Rada.

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

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

As for sports betting, bookmakers, and state lotteries, the Bereza's bill does not provide any information about their regulation. However the draft law allows gambling companies to operate via the Internet without specifying in any way what kind of activity it is.

According to the draft law, gambling operators have to issue entrance tickets to all casino visitors. The price of one ticket 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 out monthly 1000 non-taxable minimums (17,000 UAH) as an additional payment for each gaming table or slot machine located in the gambling establishment.

2. The second bill out of those that are being considered at the moment, which was initiated in September 2015by 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 are banned, as well as prohibition of playing slots is offered. Online gambling is not regulated by this draft law.

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

According to this project, it is planned to create a special gambling zone in the Kherson Oblast. In addition, the territory of four- and five-star hotels belongs to such zone. The smallest territory on which a casino can be located is 500 sq.m.

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

3. The newest draft law "On Deshadowing of Gambling Market in Ukraine" that implies the legalization of gambling business in Ukraine was initiated in June 2016 by Igor Molotok who respresented "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 in a special 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), as well as 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 to the development of the economy, social and cultural projects, as well as the development of sports.

All three draft laws allow gambling only for those who have reached the age of majority, provide licensing of each gambling establishment, creation of special 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 to be quite transparent and clear, 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 keep in mind that electronic systems are still managed by people.

Nowadays, the committees of the Verkhovna Rada are actively discussing various aspects, related to the activities of the gambling business, for example, prices of licences, tax sizes for business entities, trends in the development of 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 the moral and psychological state of society. 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 provides customers with the opportunity to gamble anytime and anywhere and bet any amount. This leads to the quick development of gambling addiction. We actually put citizens at risk. And the state, which should control this dangerous kind of activities, does nothing in this direction.

In addition, in her opinion, free access to gambling sites can completely destroy legal gambling operators. It is difficult to compete with those who do not pay taxes at all. While an operator whose activities are legal not only pays high taxes but also, 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 the gambling activity on the Internet.

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.

Opinion of Experts

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

The task of the state concerning the gambling business is not to develop it as any other branch like agriculture or heavy industry but to ensure the satisfaction of 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, sports betting. The state determines the maximum number of operators and provides the fair competition between them. The best ones are chosen depending on their financial offers. The winners are provided with the opportunity to offer games on a certain territory for a long period of time, for instance, ten years. Therefore, it is necessary to limit the number of establishments that provide access to such games. 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 take into account this practice and offer either to open the market for everyone or to invite some foreign operators.

For example, a new draft law offered in May 2016 actually opens 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 actually allows online gambling. Why actually? Some countries have the practice of restricting online gambling both by blocking sites, offering such games, and by 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, member of the European Association of Tax Law.

The expert in the field of gambling Grigory Tripulsky, an Executive Partner of the consulting company "De-Yure," is of the same opinion:

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 huge amounts. Once upon a time we believed that the legalization of the gambling market could bring about 1% of the country's budget. Now 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.

Conclusions

Any gambling business, except for state lotteries, has been banned in Ukraine almost for 8 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, which was 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. Taking this into account, it becomes obvious that the state needs to reconsider the 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 revenues for the state.

It's no secret that there is a powerful lobby in the parliament and among regulating authorities. After all, gambling is a great source for illegal enrichment of some law enforcement officers, prosecutors, regulators, and officials. They simply do not benefit from the legalization of gambling, and they do their best to prevent it. And it can continue for a very long period of 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 IMF, but 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 along time.

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