GGRAsia – Macau lessons in Singapore casino biz revamp: experts

Macau lessons in Singapore casino biz revamp: experts

Apr 18, 2019 Newsdesk Features, Latest News, Macau, Singapore

Singapore’s thinking in extending the duopoly of its casino industry and that city-state’s decision to have incremental increases in its two-tier system for tax on gross gaming revenue (GGR), could serve as a useful reference for Macau, several industry commentators have told GGRAsia.

That is on the basis that Macau is itself approaching a time when decisions must be made about what will happen to its own casino licensees – six in number – upon the expiry, now simultaneously in 2022, of their current publicly-granted gaming rights.

But Macau might want to move in the opposite direction to Singapore in terms of GGR tax, and bring its own such burden on the industry down, several commentators said.

“The current fixed [gaming] tax in Macau is rigid and the rate is very high, which could impede the city’s competitiveness in the regional gaming markets in the future,” stated Wang Changbin, a scholar at the Gaming Teaching and Research Centre, a unit of Macao Polytechnic Institute, in remarks to GGRAsia.

A number of investment analysts has noted a recent trend whereby high-value Chinese players have been migrating to regional markets other than Macau for their casino rolling.

Regional competition

Macau currently has a single-tier tax on GGR at an effective rate of 39 percent once contributions to several community initiatives are factored. When Macau’s current GGR tax was set years ago, the city faced much less regional competition as a casino hub.

Since then, a raft of new resorts has opened in Asia-Pacific jurisdictions that have lower GGR tax rates than Macau. Some observers of the global casino sector have pointed out to GGRAsia however that many of the casino jurisdictions competing with Macau also have a consumer sales tax. That they suggest, also has an impact on how far tourists can stretch their spending.

Macau has so far avoided imposing a consumer levy in the manner of Singapore’s Goods and Services Tax, although in March it emerged that the Macao Government Tourism Office was studying the potential for introduction of a tourist tax in the city.

According to Singapore’s new gaming tax arrangements, GGR tax on mass-market play will rise from a flat rate of 15 percent, to 18 percent for the first SGD3.1 billion (US$2.29-billion) of GGR collected by the casino operator. Mass GGR in excess of SGD3.1 billion will be taxed at a rate of 22 percent, the government announced.

Premium-market – or VIP – GGR is currently taxed at a flat rate of 5 percent in Singapore. According to the new tiered model, the first SGD2.4 billion of premium-market GGR will be taxed at a rate of 8 percent; premium GGR over that figure will be taxed at 12 percent. The city-state’s government said all the new tax GGR tax arrangements would be fixed for a 10-year period, starting in March 2022.

In January 2017 the director of Macau’s casino regulator, the Gaming Inspection and Coordination Bureau, a body also known as DICJ, said the local authorities were open to discussing – ahead of the expiry of Macau’s six current gaming concessions – a potential change in gaming tax rate. Voices in the industry were asking that the effective rate come down.

A recurring topic in Macau regarding refreshment of gaming rights after 2022, is whether the number of concessionaires might be expanded compared to the six currently in the sector.

‘Hard reset’ chance for Macau

Macau should use the opportunity of a likely rebid process for its gaming rights “to do a reset” of the local gaming market and work towards the goal of being genuinely a global tourism hub, rather than a Greater China casino hub, Daniel Cheng told GGRAsia.

The Singaporean is a former senior vice president for business development – casinos, for Asia, at United States-based group Hard Rock International, a firm currently pitching for a Japan gaming licence.

If Macau wants to “truly transform to anything resembling a ‘Las Vegas of the East’”, the city “would probably have to do something more drastic which I believe is what Beijing is looking for,” said Mr Cheng.

That might mean “perhaps terminating one or more concessions and instituting more regulations to drive the mass-market; and [ensuring] lower dependency on gaming; to the extent possible,” Mr Cheng told us.

A tiered tax on GGR for Macau – but in a reverse manner to Singapore – “might be interesting” he added. “Impose higher tax on junket GGR and lower tax on mass gaming,” he suggested.

Luiz Lam, a director at Macau’s Association of Gaming and Entertainment Promoters, a body representing the city’s junket sector, doubted the Macau authorities’ capacity and will to take on a drastic reform of the gaming tax structure. He disagreed with the idea that the city’s junket play should face a higher GGR tax relative to the mass-market segment.

‘The junket firms here [in Macau] already bear very high operational costs as they have to bear all expenses to serve the patrons – the costs for their trips, socialising, getting them gifts and event access, as well as to extend [gambling] credit to them,” Mr Lam told us.

Investment analysts say that gaming tax rates can have an influence on how much casinos and junkets can pay VIP players in incentives. Rebates to high rollers are typically paid either on the credit extended to them or on the individual player’s losses.

“Junket play will still have a role in the city’s gaming income in the coming years, even with the fact that the market will get increasingly be an oligopoly of the top-tier junket firms,” Mr Lam said.

“It’s not realistic to make a drastic change to get the Macau gaming market mass-centric. How many more [mass-gaming] patrons would you have to get in order to chase the gaming volume that we can achieve by VIP and premium play? Does Macau have the capacity to receive a huge inflow of mass customers?” the veteran Macau junket representative added.

Capital investment

According to the Singapore government’s April 3 announcement, should the duopoly operators there fail to meet their respective investment commitments in building new attractions – they would then face a flat tax rate of 12 percent on the entire amount of GGR from premium gaming, and a flat tax rate of 22 percent on the entire amount of GGR from mass gaming.

“Securing more capex commitment from the operators would not fit Macau ‘s vision because the operators would pay and build anything to extend their concession as long as they get to maintain the status quo,” Mr Cheng remarked to us.

Ricardo Siu Chi Sen, associate professor in business economics at the University of Macau, reckoned Macau should first define its goals regarding gaming and non-gaming developments for its tourism industry before deciding on whether to adopt a punitive tax for casino operators for failure to meet any new investment commitments that might be demanded.

After the “huge capital investment” – amounts “larger than their commitments as agreed in 2002” by the six casino resort operators in the past two decades – “what would be the new capital investment required in Macau?” said Mr Siu.

“What would be the number of years for the new casino concessions? These things have to be confirmed first before we are able to evaluate whether a penalty on unfulfilled investment is meaningful in Macau,” Mr Siu remarked to us.

To push for more non-gaming investments from the casino operators, the junket sector’s Mr Lam suggested the Macau government might consider introducing gaming tax incentives for those that can meet certain non-gaming investment thresholds.

“We’ve seen some cases where the casino operators here saw losses on non-gaming projects, despite their efforts pushing for it. So why not reward them if they are willing to do more in the non-gaming aspect?” Mr Lam suggested.