Macau Gaming Law series part 8: Minimum income – a stealthy gaming tax rate hike?

Welcome to the eighth in a series of articles on the Macau gaming law IAG is publishing throughout the month of March and in early April:

Part	Date	Article
1	Wed 2 Mar	Here comes the extension … 26 June now seems impossible
2	Fri 4 Mar	Cross-shareholding provisions crossing the line?
3	Mon 7 Mar	Problematic consequences of the satellite purge
4	Wed 9 Mar	Does the chip cap need a rethink?
5	Fri 11 Mar	Reversion of gaming areas – a problem no one is talking about
6	Mon 14 Mar	Directors’ liability – changing centuries of corporate law?
7	Mon 16 Mar	Junkets, collaborators and concessionaire liability
8	Fri 25 Mar	Minimum income – a stealthy gaming tax rate hike?
9	Mon 28 Mar	National Security – a get out of jail free card for the government?
10	Fri 1 Apr	Confusion reigns over so-called “Managing Director” shareholding
11	Sun 3 Apr	10-year concessions hamper investment in Macau
12	Wed 6 Apr	Too broad suitability checks will dilute their effectiveness
13	Thu 7 Apr	Provisions regarding other jurisdictions can cause legal conflict
14	Fri 8 Apr	And that’s a wrap – where to from here?

Macau has one of the highest casino gaming tax rates in the world. You’ll hear it variously quoted as 35%, 39% or “about 40%”. The confusion arises because there is not just one tax, but a range of taxes and charges. Let’s start with GGR-based charges, of which there are three, totalling 39% of revenue:

A “special gaming tax” of 35% which goes straight to the Macau government.
A levy of 1.6% which funds the Macao Foundation’s cultural, social, economic, educational, scientific, academic and philanthropic activities.
A contribution of 2.4% to the urban construction, tourism and social security fund.

SJM enjoys a 1% reduction on the 2.4% contribution, as it stumps up for various community initiatives such as annually dredging the waterway between Macau peninsular and Taipa.

In addition to this 39% (38% for SJM) in GGR-based charges, the concessionaires pay an annual premium with two components:

A fixed component of MOP$30 million each as per Chief Executive Order 215/2001
A variable component of MOP$300,000 per VIP gaming table, MOP$150,000 per mass gaming table and MOP$1,000 per slot machine

The variable component must be no less than the amount payable for 100 VIP and 100 mass tables, that is MOP$45 million annually. But with an aggregate of around 6,200 gaming tables in Macau, all six concessionaires are easily above that floor level.

So how much does the annual premium represent as a percentage of GGR? Let’s do a quick “past decade numbers” back-of-the-envelope calculation:

Six concessionaires at MOP$30 million = MOP$180 million
Say 3,000 VIP tables at MOP$300,000 = MOP$900 million
Say 3,000 mass tables at MOP$150,000 = MOP$450 million
Forget the MOP$1,000 for each slot – it’s just a rounding error
MOP$180 million + MOP$900 million + MOP$450 million = say MOP$1.5 billion
In peak GGR years (around MOP$300 billion), that’s around 0.5% of GGR
In pandemic GGR years (around MOP$75 billion), that’s around 2.0% of GGR

If you average the good years with the bad, the annual premium is around 1% of GGR. Add that to the 39% discussed above, and you can see why some commentators quote Macau’s gaming tax as “around 40%”.

Now 40% is a very high number. Compare it to Cambodia (5%), Singapore (8% to 18% depending on the type of play), the Philippines (5% on POGOs, 15% on VIP play) and Australia (average around 25%, depending on the type of play and which state of the country the casino is in).

When Macau’s Secretary of Economy and Finance released the public consultation document regarding the upcoming Macau gaming law revisions back in September, there was no mention of any contemplated changes to the tax rate. Nor was it a topic of conversation during the public consultation period. This led most commentators to think that the rate would remain unchanged. And indeed, when the draft of the new law was made public by the Macau Legislative Assembly in January, article 27 remained unchanged – stipulating the special gaming tax at 35% of gross gaming revenue.

However, a new provision did emerge which allows the Chief Executive (CE) to determine a minimum amount of tax per table and per slot machine. And if gross gaming revenue is too low for that minimum to be met, the concessionaires are required to make up the difference – effectively increasing the rate of tax.

Articles 20(4) to 20(6) of the draft Macau gaming law read as follows:

If the actual gross income of the concessionaire does not meet the minimum amount set forth in sub-article 6, the concessionaire shall pay a special premium equal to the difference between the special tax for games of chance calculated based on the actual gross income and that of such minimum amount.
For the purposes of the provisions of the preceding sub-article, the actual gross income shall be calculated based on the greatest number of gaming tables and gaming machines for which the concessionaire is authorized in that year.
The minimum annual gross income per gaming table and gaming machine is determined by a dispatch issued by the Chief Executive in the Official Bulletin of the Macau SAR.

There is no mention of how often the CE will issue such a dispatch, and no guidance on what basis he will use to determine the minimum gross income per gaming table and gaming machine. He can choose whatever amount he sees fit, and in these times of pandemic-decimated GGR, that must be concerning to the concessionaires.

Government budgeting in early November last year estimated Macau’s 2022 GGR at MOP$130 billion. In late December, Chief Executive Ho Iat Seng repeated that number. But for the first two months of 2022 GGR has only amounted to MOP$14 billion, an annual run rate of just MOP$84 billion.

Imagine if the CE had issued a dispatch setting the minimum annual gross income based on his estimate back in late December of MOP$130 billion GGR for 2022. And imagine 2022 did in fact turn out to be a MOP$84 billion GGR year – the current run rate. A special gaming tax of 35% of MOP$130 billion is MOP$45.5 billion, which represents 54% of MOP$84 billion.

Under this horror scenario for the concessionaires, the effective special gaming tax rate would be increased from 35% to 54%. Ouch!

Now some might speculate the new Article 20 provision is not about increasing the gaming tax rate by stealth but is instead about efficient table utilization. It might be a mechanism to encourage concessionaires to give tables they are not currently using back to the government, so that they don’t need to worry about generating a minimum GGR on tables gathering dust in a back room somewhere.

I certainly hope this is the case, but it would be nice to have some clarity from the government on this. And the way the law currently stands, the potential is there – in theory at least – for the concessionaires to suffer a very nasty surprise.

The ninth article in this series will be published next week.

Part	Date	Article
1	Wed 2 Mar	Here comes the extension … 26 June now seems impossible
2	Fri 4 Mar	Cross-shareholding provisions crossing the line?
3	Mon 7 Mar	Problematic consequences of the satellite purge
4	Wed 9 Mar	Does the chip cap need a rethink?
5	Fri 11 Mar	Reversion of gaming areas – a problem no one is talking about
6	Mon 14 Mar	Directors’ liability – changing centuries of corporate law?
7	Mon 16 Mar	Junkets, collaborators and concessionaire liability
8	Fri 25 Mar	Minimum income – a stealthy gaming tax rate hike?
9	Mon 28 Mar	National Security – a get out of jail free card for the government?
10	Fri 1 Apr	Confusion reigns over so-called “Managing Director” shareholding
11	Sun 3 Apr	10-year concessions hamper investment in Macau
12	Wed 6 Apr	Too broad suitability checks will dilute their effectiveness
13	Thu 7 Apr	Provisions regarding other jurisdictions can cause legal conflict
14	Fri 8 Apr	And that’s a wrap – where to from here?