The First Conference of the Russian World of Games Association
An all-Russian conference of the gaming and betting industry members, took place on May 27 2004, at the conference hall of the President-Hotel, organized by the Russian Mir Igr (the World of Games) association. In addition to gaming executives, member of the Presidential Administration of Russia, the Ministry of Finance, the Federation Council of the Federal Assembly of Russia, and the Federal Agency for physical culture, sport and tourism were present.
It is no secret that the gaming sector is a large-scale economic activity. This implies budget earnings, working places, investments, and the development of associated spheres, from construction and transport to catering and providing security.
The conference gathered more than 400 gaming executives. After the initial greeting by Elena Avdeyuk, Vice-President of the Russian Gaming World Association, Dmitry Slobodkin, President of the Association of the Honorable Guests to the Conference. From within the Presidium, E. Kuznetsov, Head of the Department for the relations with the business circles and non-governmental organizations of the internal policy affairs’ department of the President of Russia, traced attentively the events going on. The honorable guests’ box consisted of V. Kashin, Dr. of Sci. (economics), Professor, Deputy-Director of the State Research Institute for tax reform, N. Malis, Ph.D. (Economics), leading researcher of the Scientific Research Institute of the Finance Ministry of Russia, O. Mitin, S. Alexandrov, Yu. Afonin, and D. Afonin of the Federal Agency for physical culture, sport and tourism, I. Ballo, President of the Association of the gaming executives, A. Nelyubin of the Federation Council, V. Ivanov, Deputy-Mayor of the Government of Moscow, and D. Yakobashvili, a founder of the gaming business in Russia.
After the guests were introduced, the President of the World of Games Association took the floor.
Dmitry Slobodkin, President of the Mir Igr Association:
– Good afternoon, esteemed conference participants. In his recent address to the Federal Assembly the President of Russia emphasized once more time that raising competitiveness, thus, the changing of the quality of economy, as one of its major development tasks. And our sector, the sector for conducting games and bets, should also develop within this strategic system of co-ordinates.
Within a time-span of 16 years, beginning from the first enterprise which was established in the 1989, our sector has been developing dynamically. By now, some 400 thousand people have been employed in this field. The last year’s budget earnings from the sphere were of about 4.8 billion roubles. In so, the state has not invested a single kopeck, the sector is not dealing with state property investments and governmental investments. At the same time, private investments into the branch comprised about $1 billion.
All the numbers quoted are expert estimates, the data obtained through the channels of non-governmental organizations. Only two digits exist in the official gaming business statistics. The first one is the amount of tax earnings into the state budget. Its dynamics is very high –in 2000 the sum of budget revenue comprised Rbs500 million, reaching Rbs4.8 billion in 2003. The second digit is the number of licenses issued. At present, no other data exists in the official statistics for our sphere.
Unfortunately, having only these data, incomplete, it is impossible to trace the root of growth, what factor was of the most impact onto it, the increase in taxation rate or the increase in the number of the entities being taxed. Performing such analysis is complicated by the fact that in principle, the number of gaming equipment in our country is rather an expert opinion than official statistics. At any rate, we were unable to receive any clear data on the gaming equipment units being presently operated.
It is clear for even an amateur that any sector can be statistically regulated. The sector is extremely difficult to get properly managed, given the close to absolute absence of the economic statistics. However, we are tracing the steps being made toward managing the sector – this is the tax legislation, which is imperfect, and this is the transfer of the right of setting tax rates to the regions, thus, to the territories of the Russian Federation. Unfortunately, it only gives a negative effect.
Let me give a vivid example. There is a number of regions, the territories of the Federation, to have set maximum taxes by the rates quoted in the Tax Code. These are the Vladimir, Belgorod, Irkutsk, Magadan and the Tambov regions. In Moscow, the levying of the gaming machines is lower twofold, and lower by some 20% for the gaming tables, compared to those regions. We cannot say this is the right economic policy for this field, for in the region the budget is made of two taxes, the property tax and the gaming business tax. Therefore, the tax arrears lead to problems in healthcare, education and, most importantly, the state budget, on the federal level. Experience shows that a mechanic increase in the rates of taxation often results in a depression of budget earnings, and not to their growth.
In its address to the Federal Assembly, the President noted that within a two years’ time an efficient system of taxation should take shape, fulfilling a complete set of measures and additional decisions in the process. The address emphasized specifically the possibility of such transition, based on the tax rates, acceptable for making the business, ordering tax calculation and payment procedures, and the system of tax control and reporting. An efficient taxation system should be just for all the stakeholders of economy, and conditions of taxation should equal for all enterprises working in same sphere. At the same, the taxation system should be absolutely unsuitable for tax evasion.
The taxation system should be favorable for investments and business development, and even more favorable, perhaps, than in the competitor countries. It should establish a competitive foundation by itself. I believe this should be the strategy for developing our tax legislation, including the organization and the holding of gambling and betting.
The efficiency of state policy in any field depends on the sum of the “rules of the game” formulated by the government, that is, the legal framework of the conditions for sector development. At present, Chapter 29 of the Tax Code, the Government Resolution No. 525, On Licensing the Activities on the Organization and Keeping Sweepstakes and Gaming Institutions, and a well-known order of the State Standards’ Committee regarding the certification of equipment, should be considered the legal cornerstones for the branch.
The locally adopted legal papers and the federal law draft On the Activity of Gaming Institutions are also of note.
I would like to enlarge specifically on the judicial analysis of all those documents, and will only make a brief statement on them. The Tax Code Chapter 29 adopted has shown that the hasty law-making, and this is the only way to characterize the initial version of this chapter, requires mandatory error-correcting. I think the former the former leadership of the Tax and Levies Ministry will have the chance to calculate how much loss was brought by the introduction of this chapter of the Tax Code, requiring the judicial body to pay the taxes within the place of registration. The complete disorder in the field of registering and de-registering the units of gaming equipment should also be paid attention to, for it also allows manipulating with the sum of the tax paid. This situation is taken very attentively by the Duma of the convocation, and there are ground to count on the resolution of this issue and introducing amendments into the text of the new clause.
More serious issues do arise in the taxation field. Checks initiated by the tax service are known to have taken place some time ago. The enterprises of the sectors were attempted to be made the agents of taxation, though there is no mention of it in the Tax Code. When we met the Head of the Physical Bodies’ Income Department, it was only said that the tax authorities only “wanted to see what happens to the tax, and how is it collected”. But the result was that the inspectorates started writing out fines, and lawsuits had to be filed to prove the impossibility of applying the tax agent’s status to the gaming business enterprises. I believe the officials should take responsibility for such activities, and the whole set of takes issues requires to be worked on more deeply and in a more detailed fashion.
The Order of the State Standards’ Committee on certifying gaming equipment has lead to just one result so far, that is, to simple money taking. There has not been a single fact of someone being denied the compliance certificate. This has not taken place yet, as far as I know. And the money is taken for both the certificate issue, and for subsequent control, exercised by centers of dubious accreditation. It is absolutely unclear, if this is an obligatory certification, then why a businessman should pay for subsequent control over the observance of certification requirements, to some center suggested by the State Standards’ Committee? In a similar situation of fire safety or sanitary-epidemiological service inspection checks the money is not paid. Why should one depart from this rule in the case of the State Standards’ Committee? And the main thing what use the money is made of? More tumult is brought by the fact that until now, there has not been a price-list of any manner, issued by the State Standards’ Committee. Finally, the most crying aspect of this relationship is that in the practice of today, it is possible to get pirate software, install it on a gaming machine, and get a compliance certificate for it. So, it is possibly to certify illegal products! It is obvious that all these problems require their own solution.
Unfortunately, we can only place the description of the regional law-making process in the humor column. There is a plenty of examples when similar legal initiatives of the local authorities appeared in the towns of Belgorod, Ufa, and Stupino, the Moscow region. These pseudo-document seem to contain the rules of behavior within the gaming premises, and the standards for installing specific equipment types, and the regulations for placement of the gaming infrastructure. And this has to consider the fact that the fundamental issues of organizing gaming and betting in our country have not yet received a legal resolution, and we are at the beginning of this path. The local authorities invent definitions for the notions, yet undefined in the federal legislation, introducing provisions, deeply contradicting the federal legislation, for example, in the field of licensing, labor law and considering the control of the number of the gaming equipment and taxation. All this means that we are lacking a uniform, structured and an efficient legislation. We need to do co-operative work along with the state, so as create it.
The licensing problems are just aggravating the issues of situation taking shape. I think all shake-holders in our field are interested in not only obtaining a license (this is of a permissive nature, when the documents are submitted), but also in the functioning of an understandable and a logical system for the control over the observance of license requirements. In fact, such system does not presently exist.
I think our specialized State Sport Agency, now the Federal Agency, has a range of other issues to solve, lacking human resources and experience, so as to grasp the current scope of the gaming business within the country’s territory. We have recently obtained documents on the checks performed in the Krasnodar region, the regionally operating companies having applied to the Association. There are serious signs of infringements having been admitted by the checking bodies, and a respective lawsuit has been filed. Let me emphasize that we are very concerned with the cases like that and the situation at whole in the licensing and control sphere. The is also a circle of problems requiring a solution.
As for the draft bill On the Activities of the Gaming Institutions, it is noteworthy that no one among the established professionals from the gaming business field has claimed support for the bill. At least, no official source contains such a point of view.
One cannot agree with the populist statements of certain statesmen that until now, due to the absence of branch-specific law, the branch is half-legal, and that it is necessary to adopt any law, for the sake of the adoption process. This point of view is surprising just for the sheer fact that the branch has been working for 16 years already within the existing legal basis. The question of adopting a special legislative act is still on the agenda then a thorough, hassle-free legislative process should take place.
The draft bill On the Activity of the Gaming Institutions is to the most part devoted the licensing issue. Still, there is a law On Licensing of Particular Kinds of Activity, adopted an enacted. So, what principally new the draft bill has to offer? A sharp increase in the license fees is the first suggestion. I do remember an unforgettable by former deputy chairman of the State Sport Committee, who said that the license fees are required for the maintenance of the bureaucratic structure, involved in license issuing.
Given the text of the new law, obtaining a license will be impossible, as one to three years’ of profitable work at the market is the license obtaining requirement. And how can work without a license? In essence, the initiators of the law are provoking the entrepreneur for a serious legal infringement, simultaneously closing the door for new market players, artificially limiting competition. This is in a complete contradiction with the political and economic reform, being undertaken in our country.
The logic of the bill developers is unclear. If it is of the administrative and a prohibitive nature then the suggestion in essence is to “cancel” competition and market principles in a particular branch. However, market economy being our goal, the completely different market regulators should be in place, such as demand and supply, fair play and equal opportunities.
Still, the most worrying subject is what will be the consequences of such a law, and how will the main parameters change, namely, the budget tax revenue and the number of employees? The expert views we have, say, and these are the most optimistic ones, 67.5 thousand gaming machines will be removed from the market after the adoption of the law. In so, there will be not only the direct budget revenue loss, but also the indirect ones, for the production of a gaming machine implies VAT, profit tax, the fees of various designation, and other presently existing taxes.
Let us admit the law will be passed in the shape as it passed the second reading. To recover the sum lost by the budget, providing for the recovery of the gaming machines removed from the market, by a similar amount of them will obviously be necessary. And so does a question arise: who has the necessary means to bring the market to the number we do have today? By our estimates, this will require 400 million dollars. And in so, the amount of the market will only reach the level existing today. Obviously, in this case it will be a blow to the budget, a loss of up to 6 billion rubles a year, and the bankruptcy of the domestic producers, as the market has 70% of equipment locally produced.
Drawing a conclusion to the bill analysis, I should say that the law’s designation is to regulate either the issues not considered in other legislative acts, or those which cannot be regulated by other kinds of legislation. Given this, it is obvious that the present legal concept in one-way natured. This document is in obvious contraction with the other documents enforced, giving no chance to solve the problems of the sector mentioned above. A constructive path should be taken, namely, adopting a law on organizing and performing games and bets, stipulating the requirements on keeping the gaming institutions and uniform gaming table rules, so that respective clauses of the Civil Code could be developed.
What we do have today is a paradox: we have a bill draft and no concept for sector development, no statistics and an efficient system for the supervision and control over the observance of license requirements. It is obvious that, given the situation, an efficient development of the sector, carrying out an efficient state policy and providing equal rights for business stakeholders is impossible.
Bearing all this in mind, the World of Games Association considers the development and implementation of a uniform, logically and an economically justified state policy in the field of organizing and holding of gaming and betting, overcoming fragmentation among the sector stakeholders, providing practical support for the gaming enterprises and protecting their interests, facilitating the protection of the rights of the customers of gaming institutions, and forming a socially and a historically based gaming culture its most important activity.
The first step here is the creation of a Concept for sector development. This document should help shaping the relations between the state and business, inside the business, and between business and the people. Basing on its principles and mechanisms, the so much needed legislative acts should be adopted, in order to develop the Concept.
Carrying out a uniform state policy is impossible without an authorized licensing body, defined by law On Licensing of Specific Kinds of Activity, being capable not only of license issuing, but also of the subsequent control of the observance of license requirement and qualitative parameters for the sector.
Here, different options are quite possible, such as the establishment of an efficient state regulative system. Also, the there could be an authority-concentrated development path in the sector regulating field, and transferring the licensing functions, the control over taxation revenue, and registering legal entities to a single organization.
Irrespective of the option to be chosen, it is necessary to develop and introduce very gradually the training programs for officials, so that they could raise their competence in the subject of their consideration. There is no doubt that speaking a common language facilitates the problem solving task. We have a reverse case today: we are required to have qualification, and no less than a three years’ experience, still, we see no examples of high qualification and professionalism among the officials themselves.
We need to establish the monitoring of the economic and statistic indicators for the branch, and, co-operating with the state authorities, prepare an annual report on the branch development and its issues. This is internationally accepted experience, which must be introduced in Russia. We are developing respective documents, suggesting data collection. In doing so, the information obtained will meet confidentiality requirements.
The next aspect is the part of the regulating functions will be granted to self-regulative entities. We hope the World of Games Association could claim to gain a status like this.
In this regard I would like to note that the Association considers the protection of its members, and expressing common interests its most important goal. I mean legal support, analyzing the practice of law and arbitration, developing recommendations which could give an approach to the common problems of taxation, and issues of licensing with a well-developed legal conclusion on a particular problem. We are also interested in further staff training. We hope we could organize the Court of Arbitration on the issues of related to the branch, and that it could employ really acknowledged experts, and we consider it our obligation to get them prepared. A library should be established, and international experience should be generalized. The commonly accepted rules of conduct should be elaborated and approved, such as the professional code of ethics for the entrepreneurs within the field. It is obvious, that this work cannot be done by the Association secretariat alone, and its members should take their part actively in this.
In the end, I should like to emphasize that the Association plans to carry out purposeful work, aimed at raising the awareness of the gaming sector’s part and place in society. We should not allow speculation to arise in the field of gaming business. If there are problems, they should be solved then, and it is impermissible to blow a news bubble around, or place them into the focus of public attention. Criticism should be constructive, of course, suggesting specific problem solving paths.
The gaming sphere today has reached such a development stage, that it makes everyone interested in the customers’ interests being protected, and their rights being guaranteed. We are suggesting a whole complex of measures in this regard, first of all, working gradually for the development and a legal adoption of the uniform rules for conducting gaming and betting, and regulating the prize payout procedure. For an arbitrary change of rules could lead to a change in the probabilistic, a mathematically justified share of the prize stakes against the customer.
It is also important for us to prevent several categories of people from being involved in gaming. Today most of the gaming institutions are setting the age limit of client access at their own initiative. In essence, under the situation, the legal process is lagging behind the goodwill of the entrepreneurs. This issue should obviously be legally resolved.
This was our brief overview of the sector and its most acute issues. The program of activities suggested by the World of Games Association, based on the Declaration presented, can help solve the problems, previously accumulated, and bring the organization and holding of gaming and betting on a new qualitative development stage. The Association being the case in focus today is a mechanism for providing stability, the rule of law and responsibility for the mission that we serve.
The address was followed by tumultuous applause, and many gaming business personalities began taking the floor. Among those were Sergey Romanov of Ryazan, Director of Industriya Razvlecheniy (Entertainment Industry), a Non-Profit Partnership, Mikhail Gubernatorov, President of the Ivanovo Association for Gaming Business Development, Marina Zabalueva, President of the Gaming Business Development Association of Tatarstan, Anton Shapiro, Deputy Director-General of the Interlot JSC, the so much popular Samoil Binder, and many others. Following an established tradition, however, the statement by Igor Ballo was the most expressive.
Igor Ballo, President of the Gaming Business Personalities’ Association:
– I am wishing good luck to the World of Games Association. I should like to emphasize that the World of Games of Association is not related anyhow to the Gaming Business Personalities’ Association, and that this is an independent entity. Mr. Dmitry Slobodkin quite deserves to be in the position of the president of the new entity, to have gathered a very good and a workable team. We shall give any kind of support to the new Association.
Twelve years have passed already since the moment the Gaming Business Personalities’ Association began its existence. It is of no federal scope, and is registered in Moscow. Therefore, the Russian World of Games Association today is the only All-Russian non-profit organization in the gaming business field.
Those who were first to began working for this business, and this was just twenty years ago, remember there was no notion of the “gaming business”, and there was The Soviet Union Organization for Attractions. Just at this stage of the conception of business our organization helped it take its shape. We worked over the legislative papers, and co-operated closely with the Government of Moscow. Our organization’s service is that we did not allow foreign entities to enter the market to help the money flow abroad. As a result, 99.99% of the entrepreneurs working at the market are Russian companies.
Still, we always used to mention the fact that all business players should unite under the aegis of a workable and an effective organization, so that it could help solve the issues arising and the issues in sector development.
We hope the Russian World of Games Association to become such an organization. There is plenty of assignments to plunge into. Bringing order into the sector is necessary. The topics of carrying out a uniform state policy, providing equality in business, and avoiding the threats, being discussed today, are more just topical.
Unfortunately, there is rather a reverse trend predominating. More frequent and, to the most extent, justified opinion is expressed on the danger of chaos, and fulfilling the radical scenarios for branch development. We should be aware of the fact that the threat to the market equality principle is serious, and that some “hot shots” are nurturing radical ideas, including the nationalization of the business.
This should not be permitted, this is of no use to anyone, neither the branch, nor the state. We should be come united, compose a single action plan and strive for its implementation. I hope the World of Games Association can lead us this way. We fully support the Declaration proposed, as this document suggests the paths for these issues to be solved.
Today, it is very important to achieve an adequate perception of the gaming business. The public should be made aware that we like any other branch of economy. This is a whole industry, paying the taxes, providing for the infrastructure development, employment and social stability in the regions.
Today everything is turned upside down, and the gaming business is being criticized for its anti-social stance. In reality, it is completely different. Using legal methods, the branch is working like a pump, taking from the rich and giving to the poor, and in agreement with the legislation.
As private investments, the money working for the gaming business should be here and work for the prosperity and the development of our country. Looking abroad, sport is being developed thanks to the gaming business, and social security programs are being implemented. Same pattern can also be fulfilled in Russia some day, given an efficient development of the branch, performing a balanced and an efficient state policy. This is what we all should work and strive for.
Constructive criticism of the Bill Draft On the Activities of Gaming Institutions could be heard, given by the conference speakers. As they underlined, in its essence the draft is dedicated to some of the aspects, related to the gaming business, licensing in particular, while leaving behind the mechanism for regulating and setting the standards of gaming, protecting the customers’ rights and stimulating domestic production. Similarly doubtful are the access to market provisions. In essence, they are of a prohibitive nature. Or just another issue: requirements are set for obtaining the licenses, appropriate only for those companies, working at the market at the moment of bill adoption.
As noted at the conferences, the draft received negative judicial reviews, and a negative conclusion by the Government. This is unsurprising: its implementation can lead to the bankruptcy of most of the existing companies, a drastic fall in the production of equipment and mass dismissals. The rest is direct budget loss.
The proposals made at the conference will be very soon submitted to the authorities for consideration.
The conference was concluded by the adoption of the declaration, a set-out, by a known tradition, and an informal communication. As acknowledged by conference participants, the Conference was very enthusiastic.
Victoriya Polyanskaya