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Greece will hike taxes on OPAP, the state-controlled betting agency slated for privatisation, following rivals' complaints to the European Commission that tax provisions of Greek gaming legislation favoured the company.
The move triggered a sharp drop in shares of OPAP – one of Europe's biggest listed gambling companies – and sent the stock plunging more than 18% as investors took fright at the size of the levies.
The finance ministry said on Wednesday it had agreed with the European Commission to set a new 30% levy on gross earnings from all its games and a flat 10% rate on all player winnings from January 1, 2013.
The decision brings tax on so-called land-based or offline gambling like sports betting, lotteries and slot machines, into line with levies on earnings from its online games, which were already subject to a 30% levy under a 2011 gaming law.
The move came after online gaming operators complained to European authorities about the favourable tax regime offered to OPAP, one of the cash-strapped government's prime candidates for sale as part of its debt-reduction drive.
Last year, RGA, an association representing online gambling operators, complained to the Commission that a new Greek gambling law would leave OPAP's offline operations exempt from the 30% levy on gross profits which online operators were required to pay.
Income from offline gaming was previously treated as ordinary revenue and taxed under the normal corporate tax rate of around 21%. Player winnings above 100 euros are currently taxed at 10% and the rate will now be imposed from the first euro.
Manos Hatzidakis, an analyst at Beta Securities, said the market was expecting the taxes on the offline games to go up but not by so much.
"The percentage is very high," he said, noting that competitors in other European countries typically paid rates of between 15-25%.
"Overall, the agreement is negative on OPAP's shareholders," Dimitris Birbos, an analyst at the Investment Bank of Greece said. "As things stand, I think it would be better for the state not to go ahead with its sale, as its valuation is going down."
He estimated that the 30% levy would hit 2013 earnings before interest, tax, depreciation and amortization by 350 mln euros ($456.94 mln) and strip 280 mln euros from net profit, which last year totalled 537.5 mln euros.
The 10% levy on winnings is also expected to reduce so-called "recycling" activity, or repeated bets from players' wins, he said.
MONOPOLY
An OPAP official said the decision would impact both earnings and sales at the company, one of Greece's most profitable companies, in which the state holds a 34% stake.
"It's a big hit for the company," he said.
The tax hike, which comes ahead of an expected ruling by the European Court of Justice over whether OPAP can retain its monopoly in the Greek market, could limit competition in the market, said Beta Securities Hatzidakis.
"The tax rate — the highest ever imposed on a eurozone member state — poses a serious problem to the entrance of other online betting organisers," he said in a note.
The government is currently hammering out the details of its privatization programme, a central element in its efforts to reduce its crippling debt burden and meet the demands of its international creditors.
However revenues have badly lagged expectations, with just 1.6 bln euros raised so far from the goal of 19 bln euros targeted by the end of 2015.
The privatisation agency board met on Wednesday and began proceedings for the sale of a 29% stake in OPAP, a deal expected to be completed by the end of the year. It also invited interested parties to submit bids for the state lottery to be submitted with 45 days.
