Macau is likely to have a shortfall in its annual gaming tax income relative to the levels of public spending to which it usually has been pledged, if junket-based VIP gambling no longer makes a significant contribution to the city’s coffers, suggest several local scholars in comments to GGRAsia.
All the Macau-based VIP gaming rooms of Suncity Group, a brand described previously by investment analysts as the largest VIP junket promoter in the city, ceased operation from December 1. That followed the detention of the boss of the junket brand, Alvin Chau Cheok Wa, on suspicion of organising illegal gambling for customers from mainland China, including online gambling via the Philippines.
Subsequently – at the time this story went online – there were unconfirmed reports that Macau casino operators would cease dealing with other junket brands in the city’s gaming market.
There was a “strong possibility” that the VIP segment’s gaming tax contribution in Macau will be “close to zero” in future, suggested António Lobo Vilela, a lawyer and former adviser to the local government.
Ricardo Siu Chi Sen, a University of Macau professor with research interests in the city’s gaming and tourism sector, took a similar view.
“Practise of the [junket VIP gaming] business model is largely controversial in terms of its low transparency; the ways that the…gaming agents – junket operators – approach the patrons, provide and collect gaming credits”; and how they manage “the flow of the gambling funds,” Mr Siu remarked to GGRAsia.
The scholar added: “To construct an internationally approved, modern casino tourism jurisdiction which will also gain the long-term support by the Chinese government, the phasing out of this [junket VIP gaming] segment seems inevitable.”
VIP gambling provided a significant portion of Macau’s annual gaming tax income until recently. Gross gaming revenue (GGR) generated from VIP gambling in 2019 was MOP135.23 billion (US$16.83 billion), representing 46.2 percent of the city-wide casino GGR of MOP292.46 billion reached for that year.
In 2020, Macau’s casino GGR reached MOP60.44 billion, notwithstanding the disruption of Covid-19. Of that tally, 43.5 percent, or MOP26.28 billion, came from VIP gambling.
The Macau government taxes the GGR of Macau casinos at a rate of 35 percent, but other levies on the casino gaming gross raise the tax rate to 39 percent in effect.
Running budget deficits
“In these coming years, the Macau government will have a budget deficit” relative to its long-standing budget commitments, suggested Eilo Yu Wing Yat, a professor in public administration studies at the University of Macau.
The scholar cited the latest budget plan presented by the Macau government. It estimated that the city might see MOP130 billion in casino GGR for 2022, amid what the local government termed “great uncertainty” in macroeconomic conditions, and that Macau would continue to face a fiscal deficit.
Mr Yu also reckoned the Macau government might have already taken into account the dwindling contribution from VIP gambling activities to the city’s coffers, when making its fiscal budget plan. In the coming years, the Macau government might have to dip into its reserves annually in order to maintain the city’s public services and government functions in the established manner, the scholar estimated.
Mr Yu remarked to GGRAsia: “Viewed optimistically, the [Macau] government could maintain operations by debiting from its reserve – without the need for austerity – for a decade, at least. In the long run, there will be a growing pressure for Macau to develop other sectors to contribute to the economy as well as to government revenue, instead of relying on gaming.”
Local gaming scholar Ryan Ho Hong Wai told GGRAsia: “To make up the shortfall in the tax base, one available option is to accelerate the efforts in developing the mass market and premium mass in particular” for the local gaming industry.
“…Furthermore, mass market development is also in line with the policy direction of transforming Macau into a prime tourist destination,” said Mr Ho.
Mr Vilela, author of a four-volume work called Macau Gaming Law, said that if Macau’s junkets “cannot cater for Chinese patrons from the mainland,” those gaming promoters might need to “reinvent themselves” and “explore new markets” for gambling customers.
