PwC report warns higher gambling taxes fuel black market

A recent study by PwC, commissioned by the Betting and Gaming Council (BGC), has shed light on how increased gambling taxes and tighter regulations across Europe have affected market growth, consumer behaviour, and government revenues. The findings point to a complex and often counterproductive relationship between fiscal policy and player activity, with higher tax rates appearing to accelerate migration toward unlicensed offshore gambling platforms.

The analysis, completed in October, reviewed the gambling ecosystems of 17 European jurisdictions with similar market structures to the United Kingdom, including France, Germany, Spain, the Netherlands, and several Central and Eastern European countries. The results suggest that while the UK’s current framework is relatively balanced, higher tax burdens and restrictions elsewhere have led to slower growth, reduced channelisation, and declining tax efficiency.

Overview of the PwC study

The PwC report evaluated how variations in gambling taxation and regulatory intensity influenced several critical indicators: gross gaming revenue (GGR), market channelisation (the share of activity within licensed operators), and tax performance. The researchers examined trends since 2014, a period marked by major policy shifts across Europe.

The report categorised markets into three main groups — stable, restrictive, and liberal — based on their regulatory structures and tax rates. The UK, following changes such as the 2019 rise in Remote Gaming Duty (RGD) from 15% to 21%, and the introduction of new affordability checks, was placed in the “stable” category.

According to PwC, the UK’s average gambling tax rates now stand at 25% for horse racing, 21% for casino gaming, and 15% for sports betting. These levels are broadly consistent with the European average, positioning the UK between more liberal Eastern markets and the restrictive regimes of Western Europe.

Slower growth in highly taxed markets

Across the continent, PwC’s data shows a clear pattern: jurisdictions with higher taxes and stricter rules have tended to see slower GGR growth and weaker onshore market participation. Between 2019 and 2024, Western European countries that raised gambling taxes recorded average annual GGR growth of just 6%, compared to 17% in markets that maintained or lowered their tax rates.

By contrast, Central and Eastern European markets with lighter-touch regulation and lower taxation experienced more robust—though somewhat volatile—growth. PwC noted that in these countries, regulatory predictability and moderate tax policies contributed to higher channelisation rates and stronger operator confidence.

This divergence highlights a growing challenge for policymakers: balancing the goals of protecting consumers and maximising public revenue without inadvertently strengthening the black market.

Impact of taxation on operator behaviour

The study revealed that tax increases and regulatory restrictions prompted operators to make significant commercial adjustments. Within a year of a new tax or rule coming into effect, 13 of 19 major operators reduced gaming bonuses as a share of GGR, and 15 of 21 cut their marketing expenditure.

Higher tax obligations led operators to tighten their margins. This often took the form of raising betting gross win margins, effectively lowering the return-to-player rate. These shifts, while fiscally necessary for compliance, had noticeable consequences for players’ perceived value and engagement.

In France and Spain, for instance, promotional bonuses were cut by up to 47% following the introduction of stricter advertising rules. Meanwhile, in Germany, the rollout of a 5.3% turnover tax on stakes for online slots and poker resulted in a contraction in available games and a 50% decline in tax receipts from those verticals within the first year.

Player response and market migration

PwC’s consumer research identified several factors influencing player decisions: price competitiveness, bonus availability, and trust in operators. Players, especially those in higher-spending segments, are quick to react to changes that diminish perceived value or accessibility.

The top 5% of players, who collectively generate around 80% of total stakes, were found to be the most sensitive to reduced bonuses and tighter restrictions. These users, often familiar with international platforms, are more likely to shift their activity offshore if they perceive local markets as less rewarding.

Surveys conducted across multiple jurisdictions showed that between 40% and 53% of players were open to using unlicensed websites. In both France and Germany, roughly half of all active online gamblers now wager through offshore channels. This growing reliance on unregulated operators has serious implications for both consumer protection and state revenue collection.

Taxation and revenue paradox

One of the most significant findings of the PwC study concerns the inverse relationship between tax rates and tax revenues in certain cases. Although higher tax rates theoretically increase government receipts, PwC found that jurisdictions exceeding 25% of GGR did not achieve proportionally higher returns.

In fact, countries with lower or moderate tax regimes saw average annual increases in gambling tax receipts of 13%, compared to only 9% in high-tax markets.

The Netherlands provides a clear example: despite raising its gambling tax rate from 30.5% to 34.2%, regulators now anticipate a 9% decline in annual tax receipts. This counterintuitive outcome underscores how higher taxes can push players into unregulated markets, thereby eroding the tax base.

The study suggests that policymakers may be overestimating the revenue potential of high tax regimes while underestimating the elasticity of player behaviour in response to cost pressures.

The case of the United Kingdom

For the UK, PwC’s findings indicate a relatively stable balance between fiscal policy and market sustainability. However, recent debates surrounding affordability checks and potential future tax adjustments have reignited concerns among operators about possible disruption.

The Betting and Gaming Council (BGC), which commissioned the report, has repeatedly emphasised the importance of maintaining a regulatory environment that encourages responsible gambling while keeping players within the licensed system.

A spokesperson for the BGC commented that “evidence from across Europe demonstrates the dangers of excessive taxation and disproportionate regulation, which drive consumers towards unlicensed operators that offer none of the safeguards of the regulated sector.”

The report also notes that the UK Gambling Commission (UKGC) recently admitted it has not been able to accurately determine the size of the country’s black market, leaving policymakers without precise data on the scale of offshore play.

Lessons for European policymakers

PwC’s analysis suggests that while governments have legitimate interests in raising revenue and protecting consumers, overly aggressive tax increases may undermine both objectives. The study advocates for a balanced, evidence-based approach to gambling policy that prioritises market sustainability alongside social responsibility.

Key recommendations include:

• Conducting regular impact assessments before implementing tax or advertising changes.
• Considering gradual tax adjustments to allow operators to adapt.
• Enhancing player education and responsible gambling tools within the regulated sector.
• Strengthening cooperation between regulators and industry stakeholders to monitor offshore activity.

Policymakers across Europe, from Brussels to Berlin, are now grappling with this delicate equilibrium. The trade-off between fiscal gain and market health remains a central tension in gambling regulation.

Broader implications for the iGaming industry

For the iGaming sector, PwC’s report serves as both a caution and a call to action. It highlights how taxation and regulation, though essential tools of governance, can have unintended consequences if misaligned with market realities.

Operators must navigate this environment by diversifying their portfolios, optimising compliance, and investing in sustainable engagement strategies. Meanwhile, governments face the ongoing challenge of keeping regulation both effective and proportionate, ensuring players remain within safe, licensed ecosystems rather than migrating to unregulated alternatives.

Ultimately, PwC’s findings reinforce a principle familiar to economists and policymakers alike: when taxation becomes punitive rather than pragmatic, it risks diminishing both market integrity and public benefit.

Conclusion

The PwC study provides valuable insight into the complex interplay between taxation, regulation, and consumer behaviour in Europe’s gambling markets. It concludes that higher gambling taxes and restrictive policies do not necessarily equate to greater revenue or safer play. Instead, they often drive consumers away from regulated environments—undermining the very goals they seek to achieve.

As European governments continue to recalibrate their gambling frameworks, PwC’s analysis offers a timely reminder: effective regulation must be grounded in balance, not burden.

FAQs

What was the purpose of the PwC study?
The study aimed to examine how different tax and regulatory policies across European gambling markets affect player behaviour, market growth, and government revenues.

Who commissioned the report?
The analysis was commissioned by the Betting and Gaming Council (BGC), which represents licensed gambling operators in the United Kingdom.

What did PwC find about the UK gambling market?
PwC found that the UK market remains relatively stable, with tax rates aligning closely to the European average and moderate regulation keeping players largely within the licensed system.

How do higher gambling taxes affect players?
Higher taxes often lead to lower bonuses, fewer promotions, and worse returns for players, prompting some to migrate to offshore or unlicensed operators.

What is channelisation in gambling?
Channelisation refers to the percentage of gambling activity that takes place through licensed, regulated operators within a jurisdiction.

Which European countries have the most restrictive gambling regimes?
France, Germany, and the Netherlands were cited as examples of highly regulated markets with relatively lower onshore participation rates.

Why did gambling revenues decline in Germany?
The introduction of a 5.3% turnover tax on stakes significantly reduced available game types and led to a sharp fall in tax receipts from online slots and poker.

How does player behaviour respond to reduced bonuses?
Players, particularly those in higher-spending segments, are highly sensitive to value reductions and are more likely to seek unlicensed alternatives.

What are PwC’s recommendations for policymakers?
PwC suggests balancing consumer protection and fiscal goals, avoiding sharp tax increases, and strengthening cooperation to monitor black market activity.

What is the overall conclusion of the study?
The study concludes that higher gambling taxes and heavy regulation often backfire, reducing onshore activity and overall tax efficiency while driving players to unregulated platforms.