GGRAsia – Higher licence fees from Pagcor not a concern: MPEL

Higher licence fees from Pagcor not a concern: MPEL

Aug 30, 2016 Newsdesk Latest News, Philippines, Top of the deck

Asian casino developer and operator Melco Crown Entertainment Ltd says that the return of higher licence fees for gaming operators at Entertainment City in Manila will not affect the company in the near future. Melco Crown operates the City of Dreams Manila (pictured) via its subsidiary Melco Crown (Philippines) Resorts Corp.

The country’s regulator, the Philippine Amusement and Gaming Corp (Pagcor), has ordered the respective operators of four private sector casinos in Manila – three in Entertainment City and one at Newport City next door to Manila International Airport – immediately to restore to its original rate the licence fee payable, reported on Tuesday the Manila Bulletin newspaper.

In 2014, Pagcor temporarily reduced the licence fees that private sector casino operators had to pay by a factor of 10 percent. The new head of Pagcor, Andrea Domingo, confirmed to the Manila Bulletin that the regulator has already notified the casino operators of its latest decision.

In her comments to the newspaper, Ms Domingo said the country’s Commission on Audit had warned Pagcor because of the special rates that it is currently granting to some private sector casino operators. “What’s on the contract should be followed and what the auditor is saying should be followed,” Ms Domingo said.

That would mean that – according to the original arrangement – tax rates would increase to respectively 15 percent of gross gaming revenues (GGR) from high rollers tables and 25 percent on GGR from mass-market tables, slot machines and electronic gaming machines.

“The pronouncement of Pagcor to revoke the reduced taxes given to casinos in 2014 and reinstate the original 15 percent tax on high roller tables and 25 percent tax on non-high roller tables, will have no effect on us at City of Dreams Manila in the foreseeable future,” said a spokesperson from Melco Crown in an emailed reply to GGRAsia.

The company said it has “been paying these [the original] prescribed tax rates to Pagcor from the start”.

Casinos at Entertainment City include the Solaire Resort and Casino, operated by Bloomberry Resorts Corp; and City of Dreams Manila (pictured), of Melco Crown Philippines. Still under construction are the Okada Manila resort from Tiger Resort, Leisure and Entertainment Inc, due to open in November; and a property by Travellers International Hotel Group Inc, expected to be completed by the fourth quarter of 2020.

GGRAsia also approached Bloomberry for comment on the tax issue but had not received a reply by the time the story went online.

‘Negative but not much’

Pagcor’s decision in 2014 to reduce licence fees paid by private sector casinos, aimed to address the casinos’ additional exposure to corporate income tax brought about by a ruling from the Bureau of Internal Revenue (BIR). In 2013, the BIR imposed corporate income tax at a rate of 30 percent on the private sector casino operators licensed by Pagcor.

According to the 2014 agreement, the casino operators were to make use of Pagcor’s licence fee reduction in order to pay for corporate income taxes. Any portion not used for such payment would have to be paid to Pagcor “as an annual true-up payment”, according to Melco Crown Philippines’ annual report filed in April.

The corporate tax from the BIR is imposed on net income. Both Melco Crown Philippines and Bloomberry however reported a net loss for full-year 2015. Melco Crown Philippines recorded a net loss of PHP9.14 billion (US$197.1 million) for the year ended December 31, 2015, while Bloomberry reported a net loss of PHP3.38 billion.

Brokerage CLSA Ltd said in a note on August 25 that the “end of the tax holiday is negative but not as negative as it seems” for private sector casino operators in Manila.

“The impact on EBITDA [earnings before interest, taxation, depreciation and amortisation] would be material at around a 30 percent reduction. However, the impact on the bottom line would be far lower,” said analyst Marcus Liu.

The CLSA analyst continued: “In reality, the operators paid [whatever was] the higher… 10 percent (the difference in the gaming tax rates) of GGR or 30 percent of PBT [profit before tax] as corporate tax. With the former always larger, the effective corporate tax rate was well in excess of the 30 percent required. For Bloomberry, PBT would have to be PHP11 billion to PHP12 billion before 30 percent of PBT = 10 percent of GGR.”

He added: “Simply put, there would be a considerable offset in corporate tax if we went back to the old 15 percent for VIP and 25 percent for mass/slots gaming tax rates.”

Bloomberry in June 2014 filed a petition with the Philippines’ Supreme Court seeking to cancel the provision from the tax bureau. The company – in its half-year earnings report filed earlier in August – said it was still awaiting the resolution from the Supreme Court as of June 30, 2016.