A turnover tax on gambling is a tax imposed on the total amount of money wagered or “turned over” in a gambling activity, rather than on the profits generated by the gambling operators.

For example, imagine you take $100 to the races, and you place a $100 on the first race, it wins and you now have $350. You continue to bet $50 on each of the 7 remaining races. So, if you add up the amount you bet it comes to $450 – your first bet of $100 plus 7 bets of $50.

A turnover tax on this activity means the tax is calculated on the total value of the the bets placed, $450. Yet, the amount spent by the punter was only $100.

This example shows the very best result for the betting provider would be for the punter to finish the day broke – and the provider would have a revenue of $100. But they would be paying tax on $450.

Of course, it would be possible for the provider to lose hundreds of dollars to this punter, yet still pay tax on the $450 turned over.

Industry opponents of turnover taxation argued that the structure materially reduced operators’ capacity to improve return-to-player rates.

The mathematics of a turnover tax make it extremely restrictive – and, in fact, for some gambling games (like blackjack) even a small turnover tax would mean the game would not be viable.

For example, poker machines in NSW have a minimum return to player rate of 87%.

At a theoretical level this means a couple of things:

• Firstly, it means the theoretical revenue for the operator is 13% – that is the operator can expect to retain $13 in every $100 staked on their games.
• Secondly, it means the theoretical turnover for the player is 3.42 times their orginal stake. So, starting $100 and playing until depleted will generate a theoretical turnover of $342.

In the case of a starting stake of $100, theoretically the operator will retain $13. If a 3% turnover tax is applied their obligation to the tax office will be 3% of $342, which is $10.25.

Now, imagine an operator wants to offer a better deal to their patrons with a 90% return to player. So $100 stake produces a theoretical $10 revenue for the operator. The turnover is $388 and a 3% turnover tax will produce a tax obligation of $11.74 – so the tax office will take all the operator’s revenue plus more.

Critics maintained that turnover taxation limited pricing flexibility and distorted game viability.

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