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. Last Updated: 07/27/2016

Casinos: Tax Code Will Wipe Us Out

Legal gambling in Russia may face the threat of extinction. This was the battle cry coming from a group of industry leaders Friday, who said that with the new Tax Code coming into effect Jan. 1, casinos will come up against demands that will be financially unbearable and technically impossible to fulfill.

"If the Tax Code is not urgently amended many gambling businesses will either cease to exist or be forced to switch to an illegal existence," said Samuil Binder, the financial director of the Metelitsa Leisure Center, located on Novy Arbat.

Binder said that he and other managers of gaming establishments hoped to lobby the necessary amendments through the State Duma before or soon after the new Tax Code kicks in in January.

The sore point for the industry is two articles of the new Tax Code. One sets a 35 percent tax on any winnings from games "involving risk," including gambling, lotteries and betting. The other makes casinos responsible for collecting this personal income tax from their clients.

Binder said the two are likely to do serious harm to the business.

According to him, taxing all winnings in casinos could lead to situations when a client is taxed even if he loses money, because there is no system for tracking winnings and distinguishing them from the money a person had in his pocket originally.

For example, Binder said, if a person comes to a casino with 1,000 rubles ($36), loses 800 rubles and decides to cash in the remaining 200 rubles worth of chips, 35 percent will be deducted from the sum he cashes in. "It will simply mean the client will receive only 130 rubles."

The new code gives casinos the task of collecting a 35 percent tax on all winnings.

On top of withholding taxes, casinos would also be obligated to file information on winnings to the tax authorities. Such paperwork would require full personal data — including name, address and passport information — that would then have to be forwarded to the client's local tax collector together with confirmation that the appropriate tax has been withheld.

"This means that all our clients would have to disclose their identity" Binder said, calling the rule "a serious breach of privacy."

The industry representatives also complained about the plan to tax gamblers who use slot machines. Most machines take cash, making it almost impossible to track people's winnings, said Alexei Barbaryush, honorary president of the Union of Leisure Enterprises of Moscow and a co-chairman of Russia's Association for the Development of Gambling Business, or RABIB.

RABIB is behind the move to amend the new Tax Code and has submitted a proposal to change the taxation of casinos to the Duma.

Apart from a variety of standard taxes applicable to businesses, gambling spots are taxed per table and per slot machine. This tax is also likely to increase, but the practice itself is standard worldwide.

There are more than 2,000 gaming establishments across Russia, including small halls with gambling machines, according to the conference speakers. In Moscow alone the industry employs some 55,000 people.

According to Boris Belotserkovsky, the CEO of Unikum, which supplies slot machines, if the law is not amended, many slot machine owners will switch to illegal operation or disappear.

RABIB's Barbaryush echoed the sentiment, adding that the move underground will only foster corruption.

For small businesses it will mean not registering slot machines, but instead bribing local policemen to keep them at bay.

"Russians are creative," Barbaryush said. "The question is does the state need to develop this kind of creativity."