Updated 7.55am: Overseas based online gambling websites are about to come under the Government's scrutiny.

Racing Minister Nathan Guy set up a working group to look at the online betting industry operating outside the country's rules and regulations.

He says those operations are making money on New Zealand sports and racing without paying their fair share of tax, or making contributions to local sports and racing interests.

"This is a challenging issue. This is the first real attempt to clarify the extent of the problem and hopefully come up with some solutions. It won't be easy, it will be challenging."

The TAB's inability to offer competitive rates is pushing customers overseas.

University of Liverpool's sports finance expert professor Tom Cannon says it all comes down to competition.

"Offshore operators can offer better odds, because they don't pay the tax that the TAB pays and that on shore betting operations pay."

However the New Zealand Racing Board is hoping surveillance of offshore betting will bring a more even playing field to the industry.

Racing Board chair Glenda Hughes says there are no controls or restrictions for offshore betting.

"All of the profits go to racing and sport in New Zealand, we have to pay racing and sport in New Zealand for their products, we have to pay fees, we have to pay tax to help the problem gambling situation."

Guy has appointed former Napier MP Chris Tremain to head the group which is due to report findings back to the government later this year.

Mr Guy says Mr Tremain has the skills for the job.

"Chris Tremain has a lot of familiarity with the gambling regulations as the former Minister of Internal Affairs, he also has a strong sporting background as well so it's logical that he comes in and adds some experience."

Professor Tom Cannon is concerned an increase in the use of overseas betting agencies could promote unhealthy gambling habits.

"The issue is responsible gambling making sure protections are in place for the young, or people who might be more vulnerable. They simply aren't in place and they're not really anywhere on the horizon."