The Macau government plans to pocket MOP200 million (US$25 million) next year in taxes on commissions paid by casinos to junkets, according to its 2017 budget proposal. That represents a year-on-year increase of 5.3 percent compared to the 2016 budget forecast.
The figure was included in a report by the working committee of the city’s Legislative Assembly that has been tasked with scrutinising the 2017 budget proposal. No explanation for the increase was provided.
The Macau government is historically conservative when forecasting gaming-related tax revenue in its yearly budgets. Revenue from taxes on commissions paid by casinos to junkets was MOP337.5 million in 2015.
Macau’s Chief Executive, Fernando Chui Sai On forecast last month the city’s 2017 casino gross gaming revenue (GGR) would total MOP200 billion. That is the same number the government forecast for 2016.
Macau’s accumulated casino GGR for the 11 months to November 30 stood at nearly MOP203.40 billion, a year-on-year decline of 4.3 percent from the equivalent period in 2015.
Junkets – also known as gaming promoters – are licensed by the Macau government to promote VIP gaming in the city’s casinos. They also extend credit to players, collect on losses generated by high-roller play and provide accommodation, among other services offered.
Chinese-language financial newswires out of Hong Kong reported last week – quoting a note from analyst Karen Tang of Deutsche Bank AG – that the growth rate for Macau VIP GGR in November was likely to have been 20 percent judged year-on-year. They also reported that Ms Tang’s note stated this type of robust VIP growth rate could be extended into the coming six to 12 months.
Analysts DS Kim and Sean Zhuang of JP Morgan Securities (Asia) Ltd said in a memo on December 1, regarding the likely positive outlook for the Macau VIP segment: “In our view, this is driven by a combination of better [China] macro backdrop (e.g. property price rally, coal/steel price hikes, higher producer price index, etc.), improved player confidence (e.g. less intense [China] anti-graft campaign); better junket liquidity and recent new [Macau casino] openings.”
Calculating the tax revenue
A withholding tax of 5 percent is levied on commissions paid by gaming operators to junkets; but the withholding tax is not levied on the gross value.
In Macau, junket operators are offered incentives to bring players to casinos by usually being offered either a share of the revenue or a commission on rolling chip turnover, with the latter capped at 1.25 percent.
According to the 2016 interim report of Macau-based casino operator Wynn Macau Ltd, “approximately 80 percent” of the gross commission it pays to junkets – calculated as a percentage of the gross gaming win generated – “are netted against casino revenues” as they are returned to VIP players as part of junket-organised rebate schemes.
“The commission ultimately retained by the gaming promoters for their compensation” is “approximately 20 percent” of the gross commission, according to Wynn Macau Ltd.
Wynn Macau Ltd reported the payment of HK$427.9 million (US$55.2 million) in final junket commissions in the first six months of 2016, 13.0 percent less than in the prior-year before. The decline was due to “decreased business volumes,” the firm stated in its interim report.
According to Sands China Ltd’s latest interim report, the company paid US$60.5 million in final gaming commissions to junkets in the first six months of 2016, a year-on-year decline of 26.2 percent.
Additionally, the Macau government can authorise a total or partial exemption from taxation on junket commissions or remunerations that are paid in kind, such as transportation, accommodation, food and beverages and entertainment.
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"The stronger mass growth [in Macau in the second quarter] should be viewed positively vis- à-vis [the] government’s stated priority”
Japanese brokerage Nomura