I'm confused, since betfair is an exchange aren't they just taking a cut of the action? Why would they add a heavy tax onto profits which would just drive heavy bettors away?
n.b. The 20-60% ‘premium charge’ that Betfair inflict on long-term winners is different to their standard 2%-5% commission that they charge everyone for any net profit on a market. The premium charge is calculated weekly over a customer’s profit & loss. So its effect is not the same as if the commission was as high as 60% per bet. Like a tax, the PC won’t make a profitable gambler unprofitable, it ‘just’ means Betfair get to keep more of your profits.
It’s also worth pointing out that the standard commission (2-5%) can add up to far more than 60% of your winnings anyway. As no-one wins every bet they place, the commission will become a larger percentage of your net profit. For example, Betfair charge me 2% commission and I ‘qualify’ for their premium charge of 40% - but my betting patterns already result in over 40% of my gross profit going to Betfair :(
They get you hooked thinking they are only taking 5% or whatever it was... and from pretty much everybody who bets there, they do only take 5%.
But all of the "smart money" gets taxed at 60% when they inevitably take all of the losers money who only paid 5%.
So in essence, they are doing exactly as you suggested... "they're just taking a cut of the action." But it's a 65% cut!
On the flip side, a great many people pay far higher than 60% of their net profits to Betfair... most will have paid over 100%...