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Macau Business
21 October 2021
By Tony Lai
Macau gaming tax rate might gradually increase to offset the shortfall in VIP revenue: panellists
While more clarity should be provided in the government’s proposals for revising the gaming law of Macau from the prior permission from the authorities for gaming operators to distribute dividends to the introduction of government delegates in the operators, the discussion of possible changes in the gaming tax has been overlooked, said a panel of gaming experts.
The remarks were made in the latest webinar session of “MBtv/FRC Debates” held online on Thursday night (today) and co-organised by Macau Business and Rui Cunha Foundation. The online seminar, titled “Game ON: The Gaming Law and the Future of the Industry”, has invited gaming analysts, academics and lawyers to discuss the public consultation document advanced by the authorities in September about the amendments to the gaming law. The 45-day public consultation is on-going and will run until 29 October.
One of the panelists — Rui Pinto Proença, a partner at local law firm MdME Lawyers — categorised the nine key provisions laid down in the consultation document into three main areas: expected and non-controversial suggestions like the pledges of non-gaming investments, local employment safeguards and social responsibilities; the amendments that might bring “profound changes” to the gaming operators, or “devil in the details”, such as the prior permission for the operators to distribute dividends, the official representatives in the operators and the increase of local shareholdings; and the core terms like the number and duration of the future gaming concessionaires.
In the perspective of gaming analyst and former gaming executive Alidad Tash, the consultation document does not directly and explicitly address whether there are changes to the current gaming tax rate, which might be essential in light of the declining junket segment over heightened government control and other macroeconomic factors.
Currently, the direct tax on the gross gaming revenue of Macau casinos stands at a rate of 35 per cent, but there are other levies on casino gaming for the usage of public welfare, social and cultural affairs, making the total tax rate on casino gaming at 39 per cent.
Gaming tax rise?
The VIP gaming revenue, or revenue generated mostly by the junkets, made up about 70 per cent of the Macau gross gaming revenue in 2013, and only about 40 per cent in 2019 before the Covid-19 pandemic hit, Mr. Tash, the managing director at 2NT8 explained.
“In five to 10 years, the most optimistic view I’ve heard from the junkets is that they might go back to half of what they used to do, which is roughly about 20 per cent of the total gaming revenue,” the “FRC/MBtv Debates” panellist pinpointed.
Given the heavy reliance of the city’s public finance on gaming tax receipts, which account for about 70-80 per cent of the total government revenue, the Macau authorities had to dig deep into the fiscal reserve in the past two years to achieve a balanced budget in the wake of the plunging gaming revenue over the pandemic.
“I genuinely do not believe the government is going to keep the gaming tax at 34+5 per cent, or 39 per cent. I think it’s likely that they will increase it gradually, 2-5 per cent, over a few years, or they will go ahead to take care of that shortfall… as the junkets are basically, slowly diminishing as time goes by,” said Mr. Tash. “There is a tax issue that has to be resolved.”
Another expert on the Thursday panel, Carlos Siu, an associate professor from the Centre for Gaming and Tourism Studies of Macau Polytechnic Institute, highlighted the annual government expenses average MOP100 billion at the moment while the other non-gaming sources of government income total MOP20-25 billion, meaning the remaining MOP75-80 billion has to be supported by gaming tax receipts for a balanced budget.
Putting the figures proposed by Mr. Siu in perspective, the Macau annual gaming revenue has to average at least MOP200 billion for a balanced budget, should the total gaming tax rate keep at 39 per cent. According to the Macau Gaming Inspection and Coordination Bureau (DICJ), the gross gaming revenue of Macau was MOP292.46 billion in 2019 before the Covid-19 outbreak, and the revenue plunged to MOP60.44 billion a year later.
“Disturbed” relationship
“We’re addicted to gaming tax,” said another panellist José I. Duarte, who is a local-based economist and a senior analyst at Macau Business. “If we are to attack the junkets and the VIP sector and put some discipline… there will of course be some consequences in terms of tax [receipts] and we have to learn to live with much fewer taxes and much fewer leeways than we have nowadays.”
The proposals made in the consultation document seem to imply the city’s “slightly disturbed relationship with gaming”, the economist said on Thursday. “It’s like a very rich uncle that nobody loves too much but everybody loves the money he brings,” Mr. Duarte illustrated.
“Gaming is blamed for several ills, but at the same time, it’s the source that will allow us to solve those ills.”
All the four panellists also agree the government should provide clarity on some of the suggestions in the consultation document, namely, the prior permission from the government for the operators to distribute dividends, the official representatives in the operators and the increase of local shareholdings.
Satellite casinos
In addition, Mr. Tash, the 2NT8 managing director, pointed out the consultation document did not specifically address how satellite casinos — the properties operated and promoted by a third party under a gaming license of the city’s six gaming operators — will be handled in the future. According to DICJ, there are about 20 satellite casinos out of 40 casinos in the city.
“We have too many of them… and that number should be cut down significantly,” he said. “I’m not saying every single satellite casino should go out. I’m talking about the little ones that are purely casinos — they are exactly the opposite of what Macau wants.”
Addressing the satellite casinos as the “complex and historical issue”, Mr. Proença, the MdME lawyer, noted some of them have made contributions to the community. “The consultation document said more than once about the principle of ‘quality over quantity’ — we’ve been reading it as referring to the number of concessionaires but it could also refer to the number of casinos around town,” he said.
More details of the webinar will be available in the November issue of Macau Business.
Watch the video of the MBtv debate on Facebook here.