Casinos may be hit with higher taxes than numbers forecast operators

Casinos may be hit with a higher tax structure than numbers forecast operators (NFOs) under the gaming sector tax structure to be announced in Budget 2009 this week.

OSK Research in a sector update report yesterday said: “Raising casino taxes is unlikely to cause a significant drop in casino visits apart from the VIP segment, as most of Resorts World’s casino visitors are domestic day trippers.”

According to the research house, the Government may choose to impose a „two-tier system“ that would see higher taxes for the mass market and the same or slightly reduced taxes for VIPs. OSK estimated that every one percentage point hike in casino tax will affect Resorts World Bhd’s earnings by 2.1% and Genting Bhd’s earnings by 0.5% in 2009.

The government would consider the fact that „raising mass market casino taxes significantly might affect or delay capital expenditure commitment“ in enhancing non-casino facilities at Resorts World, said OSK. “This would reduce its tourism appeal against the backdrop of increasing regional competition,” it added.

Based on its estimates, additional tax collection from a five percentage point hike in casino tax would represent less than 0.1% of the government’s estimated annual tax collection of USD 35.9 billion to USD 41.9 billion.

As for NFOs, OSK argued that a change in the legal NFOs‘ current tax structure could prompt the resurgence of illegal NFOs and a reduction in legal NFO tax collection. „We believe that NFOs would be spared from any potential tax hike in the upcoming budget,“ it said. „Raising NFO prices at the expense of lower prize payouts will likely impact sales volume and the government’s overall tax receipts,“ it added.

With an estimated average legal NFO bet size per person of between USD 2.9 and USD 4.4, OSK said. The prevalence of pathological gambling within the NFO segment was not a critical issue. OSK is maintaining an “overweight” recommendation on the gaming sector.