LONDON (AFX) - The gross profits tax on betting has helped encourage bookmakers to retain their core operations in the UK but Customs & Excise needs to tackle the challenges posed by electronic gambling such as betting exchanges, the National Audit Office (NAO) said.

In a report on gambling duties, the NAO said the tax, introduced in Oct 2001, was designed to stop bookmakers from basing their operations offshore and offering tax-free betting to punters.

The new duty meant bookmakers paid taxes on their gross profits instead of punters paying out on their initial stakes or winnings.

However, the NAO said Customs has "underestimated the popularity of new betting products with low profit margins".

This means the duty revenue rate as a percentage of bets placed has been lower than expected -- down to 1.2 pct in 2003-04 from 6.7 pct in 1999-00, the NAO said, even though spending on betting was higher than expected in terms of the value of those bets.

"The gambling industry's use of electronic technology to develop new forms of gambling poses new risks to revenue," the NAO said.

"Betting exchanges, interactive TV gambling, mobile phone gambling, spread betting and internet gaming have all emerged in recent years. Customs will require more IT expertise to carry out compliance work on these activities."

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