More than two years ago there were discussions about levying heavier gaming taxes on the city’s six gaming operators as a condition of renewal of their casino concessions. Fast forward to 2017: some now talk about lowering taxes for the healthier development of the industry.
With the expiry of the first licence due in about three years, the authorities say they are still open to discussing any changes: some hope for a lower tax regime in the face of regional competition whilst some argue it should remain as is or even increased to ensure the sound financial system of the territory. As the six concessions and sub-concessions will expire between 2020 and 2022, talks regarding the development of the entire industry have gained momentum in recent times following the publication of a mid-term gaming review in May 2016 that many observers and analysts say failed to lay down a clear blueprint for the sector as expected.
Angela Leong On Kei, Executive Director of gaming operator SJM Holdings Ltd., weighed in on recent discussions, saying there was “room for [downward] adjustment” in the gaming taxes of Macau. “The government should look to the future and think how it can facilitate the better development of the Macau gaming industry…in view of the [gaming industry] development in neighbouring regions,” she said on a television programme in January.
She refers to the opening of more casinos and the legalisation of the gaming industry in more countries in the Asia Pacific region, namely Japan. The Asian nation approved a bill in December to legalise casino gambling, paving the way for the inauguration of new gaming resorts in the post-2020 period.
Wang Changbin, associate professor at the Gaming and Teaching Research Centre of Macau Polytechnic Institute, thinks the current gaming taxes of Macau are “relatively high” compared to other Asian jurisdictions. The city currently levies a tax rate of 38- 39 per cent on the gross gaming revenue of casinos, including a 35 per cent direct gaming tax, and a tax of 3-4 per cent for welfare and development causes.
Lower VIP tax
“Given the city’s status as a gambling mecca any downfall in the sector will have a huge impact on the city,” Prof. Wang warned when headwinds in the local casino industry led to an economic slump in the territory in the past two years prior to a recent recovery.
Thus, the academic agrees that the city’s casino taxes could be lowered – in particular for VIP gaming revenue – because the competition for Mainland Chinese high rollers has become increasingly intense with new casinos in the region offering lucrative deals. “Compared with mass gamblers¬…VIP players have financial powers to travel farther away [from Mainland China and Macau] for gambling,” he reasoned. “The regional competition will be more challenging to Macau’s VIP segment.”
He suggests Macau look at other markets, in which there are different tax rates for the VIP and mass segments. In Singapore, gross gaming revenue is levied with at a tax rate of 12-22 per cent, including a 7 per cent Goods and Services Tax and a levy of 15 per cent for mass market play or 5 per cent for VIP play. A 15 per cent tax is levied on VIP gaming revenue in the Philippines and 25 per cent on mass revenue.
A lower tax rate could entice more investors to engage in the local junket segment, thus attracting more high rollers to the city, says a local gaming industry figure, declining to be identified. “Some junkets have relocated their operations to other regions in Asia like the Philippines and Cambodia, given the downturn in Macau and new opportunities presented by other markets,” the figure said.
Local media reported last month that about 120 licensed junkets – known as gaming promoters in official parlance – operated in the territory as of January 2017, down more than 10 per cent from the 141 of January 2016. The latest data from the Gaming Inspection and Co-ordination Bureau said the 2017 figure had tumbled by nearly half from 235 licensed junkets at the 2014 peak amid the anti-corruption crackdown on the mainland and tightening junket policies like stricter rules on auditing and accounting.
“Lower VIP gaming tax could be beneficial to [junkets] business but whether the government will do so is another matter,” the figure said. “It seems the direction of Macau policies now is to reduce the reliance upon junkets.”
Fiscal coffers
Following the inauguration of the new term of government in 2014, the city placed emphasis on the growing Chinese middle-class and family visitors than high rollers whilst facilitating ‘the healthy development’ of the junket sector with stricter rules.
In response to the talk of changes in gaming taxation the Macau gaming regulator said that there were no plans at the moment concerning the levy regime but that the authorities remain open to any suggestions.
Speaking on a public occasion in January, Secretary for Economy and Finance Lionel Leong Vai Tac added that the administration was actively planning for the future development of the gaming industry in view of the regional competition. But he stressed lowering tax was “not the only means” of enhancing the competitiveness of local casinos, with the quality of services, variety of products and marketing also important.
A public consensus should be reached before any changes in tax, stressed Billy Song Wai Kit, president of the Macau Responsible Gaming Association, as the direct gaming tax is the largest source of fiscal income of the Administration.
“If the tax is lowered the city in the long run has to have higher casino takings to maintain the current level of fiscal revenue,” he cautioned. “This is simply a different direction from the economic diversification [from the gaming industry] the government is now working on.”
Direct taxes from gaming amounted to an average 81.42 per cent of the city’s annual fiscal revenue in the 2011-2015 period, figures from the Financial Services Bureau reveal. But the share has slightly declined in recent years amid the economic diversification reorientation: In the first 11 months of 2016, direct gaming tax totalled MOP72.76 billion, representing 77.7 per cent of total government revenue.
Sensitive topic
As Macau-based lawyer André Santos Raquel, who focuses on gaming and banking, suggests, lowering the tax is only possible when the city is less gaming-reliant. He wrote in the Asian Gaming Lawyer magazine in 2015 that the Administration had to take “decisive steps to ensure the long sought diversification of the local economy, rendering the Macau budget less dependent” on gaming tax.
Davis Fong Ka Chio, Director of the Institute for the Study of Commercial Gaming at the University of Macau, said the gaming tax regime is a “sensitive topic” requiring the engagement of the industry and the public in discussion, while the government had to study the matter in a holistic approach in consideration of all factors.
“The views of whether the gaming tax is high or low vary across different stakeholders,” he recently remarked. “[But] the current tax rate currently does not impose huge operating pressures upon the gaming operators…as they’re not losing any money at the moment.”
In addition to gaming taxes, the government now exempts the city’s gaming operators from paying a 12 per cent complementary tax on profits generated by gaming operations. The companies still have to pay the complementary tax for profits generated by the non-gaming segment.
Leong Sun Iok, president of Macau Gaming Industry Employees Home, an affiliate of the prominent Macau Federation of Trade Unions, suggests authorities exempt such tax in the post-2020 period only once the gaming companies fulfil their social responsibilities, namely ensuring the welfare of their workers.
Although the expiry deadline of the gaming licences is approaching, no concrete plans have been announced with regard to the matter other than the mid-term review. Leong Vai Tac, the city’s top financial official, reassured in January that the government would make decisions before 2020. “We continue to welcome any suggestions proposed by the media and the community concerning the gaming industry,” he concluded.
