If offshore taxfree betting continues to grow, the Treasury could lose £50m a year.
Having just recovered from the Cheltenham Festival - bookmakers and punters are once more studying the form ahead of this weekend's Grand National at Aintree.
The odds are that this year, up to 10% of the £100m bet on the Grand National will be placed via the internet or the telephone.
People that do this will pay either 3% tax - if they bet on the phone - or no tax at all, if they bet on the internet. Those that walk into a high street shop to bet face a 9% tax.
The Treasury must now cut taxes to allow the UK to compete with cheaper offshore bookmakers, or watch jobs and revenues disappear overseas, bookmakers claim.
Boomtime for gambling
The betting and racing industry is worth an estimated £7bn a year.
Customs & Excise makes an estimated £450m annually from this.
If offshore taxfree betting continues to grow, the Treasury could lose £50m a year.
It isn't just the Treasury that loses out if people bet offshore. The racing industry receives almost £52m each year from the Horseracing Levy Board, which distributes money from bookmaking into racing.
Ladbrokes calculates that for every £100 a punter bets, it costs them £13.76. If the same punter placed these bets on the telephone, he could bet £157, before facing the same £13.76 charge.
While they may not be able to advertise the tax-free alternative, Ladbrokes and William Hill say internet and telephone betting is growing by the day.
William Hill has an offshore telephone betting operation based in Antigua and run from a call centre in Athlone, Co.Westmeath, in Ireland.
"It is increasing exponentially. From week to week, the figures are changing..We would expect that 10% of our Grand National revenues would come from offshore," a William Hill spokesman said.
"This year is the first year that offshore betting has widely been available for domestic punters," he said.
"It is growing rapidly every day. A lot of it is spread by word of mouth. People who bet know people who bet," a spokesman for Ladbrokes, which employs more than 150 people in Gibraltar, said.
Cutting the tax rate in the UK could make the country a vibrant centre for internet gambling, cementing a reputation established in the 1960s when the UK and Ireland legalised betting shops, bookmakers say.
If the government wants jobs and revenues to stay in the UK, it needs to cut the tax to 3%, so it can match the offshore betting centres, they say.
"We need a level at which we can compete with the offshore betters,"a William Hill spokesman said.
Ladbrokes points to the Irish experience, where cutting the tax rate from 10% to 5% last July didn't reduce tax revenues - it just encouraged more people to gamble.