The SAO audited gambling: Received bets increased by 119%, tax collection by only 24%, lack of reliable data to check tax returns of game operators
Press release on audit No 22/31 – 12 June 2023
When examining state funds related to the competence of state authorities in the field of gambling and the efficiency of the administration of taxes collected from these games, the auditors of the Supreme Audit Office found that the Ministry of Finance (MoF) did not provide information support for the efficient administration of the gambling tax, the control of tax returns of the operators of these games nor for supervision. For the game operators who repeatedly violated the law, the Ministry of Finance did not revoke the basic authorisation and in some cases did not use the bails to pay the taxes owed. The auditors also found that the inclusion of illegal internet gambling on the list of unauthorised users took more than a year. At the same time, the Specialized Financial Office (SFO) detected a total of 794 illegal gambling operators during the audited period. This is 15 times more than those with issued authorisations. The SAO audited five entities, among them the Ministry of Finance and SFO.
Between 2017 and 2021, players bet a total of CZK 1.80 trillion. The total collection of the gambling tax amounted to CZK 50.5 billion and tax collection thus increased by 24%, while received bets increased by 119%. Of this, deposits into internet gambling increased by almost 300%. The auditors pointed out that gambling is moving from brick-and-mortar stores to the internet faster than its supervision. Supervisory authorities reacted belatedly and insufficiently to the rapid growth of internet games. While in 2020 and 2021, the Czech Customs Administration carried out 239 inspections in brick-and-mortar premises, only 80 of them were carried out at the internet game operators.
Although expenditure on information systems (IS) amounted to CZK 174.1 million, they are not fully operational and do not provide state administration authorities with complete, fully usable and reliable data. The Ministry of Finance has prematurely discontinued the development of the new AISG system and continues to operate the original non-compliant IS. The money was thus spent in part uneconomically and ineffectively. In this context, the SAO notes that there are still problems that it pointed out nine years ago in audit No 13/35*. In addition, for expenditure related to the operation of the original IS in 2016 and 2017, the SAO revealed duplicate payments for more than CZK 2.5 million, which it assessed as a fact suggesting a breach of budgetary discipline.
The results of an audit sample of 15 tax returns of gambling operators demonstrate the unreliability of the data of the new IS. In either case, the data in AISG did not match the data from the tax returns. The SFO, as the gambling tax administrator, used AISG data in the identified cases for a formal inspection, not for the purposes of the tax assessment procedure.
Due to the limited IS functionality, the MoF does not have a correct and complete overview of accepted bails. Some information is recorded only in auxiliary Excel tables or in paper form. In Excel tables, the accepted bails amounted to CZK 3.84 billion. The SAO also found that the Ministry of Finance had repeatedly failed to comply with the Gambling Act when administering bails. For example, in one case, it agreed to release bails totalling CZK 60 million, although the SFO recorded a tax arrears of CZK 18.6 million with the operator. In another case, the Ministry of Finance for two years did not respond to the appeal lodged against the decision to revoke the basic authorisation of the insolvent casino operator or to the disappearance of the last gaming area of that operator. During the period of inactivity of the Ministry of Finance, the validity of the fifty million bail expired, from which the claims of the state from tax arrears and fines amounting to CZK 45 million could have been paid.
Although, according to the law, the basic authorisation to operate gambling games can be revoked in case of repeated violations of the law, the Ministry of Finance did not use this possibility. Nor did it revoke the authorisation to the operator, who received 76 fines totalling CZK 4.62 million from the Customs Administration for repeated violations of the Gambling Act between 2017 and 2021. In this context, the auditors also drew attention to the fact that fines were imposed at the very lower legal limit. For example, for the mentioned operator, the fines for individual offenses reached an average of 0.06 - 1.17% of the maximum possible. In total, between 2017 and 2021, the authorities of the Customs Administration imposed legal fines in the amount of CZK 94.2 million.
The efficiency of supervision in the area of unauthorised games on the Internet is reduced by the ambiguous wording of the law, which defines “targeting or targeting persons residing in the Czech Republic as a sign of illegality”. Assessing the legality of internet games is therefore time-consuming.
For an audited sample of initiatives, the period from their acceptance by the Ministry of Finance or the Customs Administration to the publication of gambling games on the list of unauthorised games ranged from 119 to 368 days. During this period, unauthorised gambling is allowed to continue to operate in the Czech Republic. The SAO assessed this fact as an indication of the impaired effectiveness of the Gambling Act in the field of protection of bettors and recommended by amending the law to refine the criteria for assessing unauthorised internet games and thus to streamline the process of blocking the relevant websites.
Supreme Audit Office
*Audit No 13/35 – State budget revenue related to the operation of lotteries and other similar games.
- Audit report No 22/31 (pdf, 467 kB)