At the Crossroads
Could Singapore's massively undercutting gaming tax regime be a threat to Macau's VIP sector?Tuesday, 12 May 2009
On the surface at least, the prospects for the VIP market in Macau in the remainder of 2009 appear to have got a little brighter compared to the gloomy predictions of the final quarter of 2008. Back then analysts were expecting shrinkage on gross turnover of anywhere from 15% to 4% year on year.
In Macau Gaming & Property—Turning the Corner, a new report from Morgan Stanley issued in late April, analysts put this year's correction at the lower end of that range—i.e., 4%. They cite the possibility of improved margins on the back of cost cutting and potential commission caps (of which more later).
"March [VIP] revenue up by 20% MoM (month on month) is encouraging," states the report.
"VIP revenue increased 28% MoM in March and shows signs of better credit conditions," adds the paper.
"We expect industry revenue to decline 4% this year and margins could improve based on cost cutting and potential commission caps. Although opening of City of Dreams could ignite a fierce war between Venetian and Melco, other players might see sustained growth."
While this analysis has a clear rationale in terms of the Macau market's traditional catchment area for players (i.e., Hong Kong, Taiwan and Guangdong province in Mainland China), there is arguably, beginning in the final quarter of 2009, a wild card coming into play—namely the threat of external competition in the form of Singapore, with its massively undercutting tax regime.
The total tax burden on the gross of VIP play in Singapore will be one third of that in Macau. Singapore's effective tax rate for high rollers will be 12% (5% gaming tax plus 7% Goods and Services Tax) compared to Macau's rate of just under 40% (35% gross gaming tax plus an additional levy for social purposes). This differential means Macau junket operators may seek to give high rollers the option of a three or four-hour plane ride from the Pearl River Delta to Singapore to give them more bang for their buck.