Inside Asian Gaming

INSIDE ASIAN GAMING | July 2011 30 Macau Policy H ands up who has read, or even heard of, Article 105 of the Basic Law of the Macau SAR? I am sure not many, yet it is fundamental to understanding why Macau has such an apparently high tax rate (35%) on gross gaming revenue. Article 105 provides as follows: The Macao Special Administrative Region shall follow the principle of keeping expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product. The concessionaires, particularly those controlled from Nevada, have periodically asserted that Macau’s special gaming tax is too high, and that it is uncompetitive. The inference is that the sky will fall in if it isn’t drastically reduced, though the prospect of that occurring in the context of Macau’s continuing gaming revenue growth would seem remote anyway. They, and sympathetic commentators, point to the 6.75% gaming tax rate in Nevada as the beacon which should guide other jurisdictions wishing to nurture their gaming industries. The situations each jurisdiction faces are not comparable, and it is facile in the extreme to look only at the headline gaming tax rate. Here’s why. Centralism versus regionalism Nevada is one of 50 states, operating in a federal system. Like other federal systems, such as Australia and Canada, there is a fiscal imbalance embedded in it. The United States’ system necessitates transfer payments being made from one level of government to another, to match sources of revenue with the place of expenditure. In the US, most income tax and social security revenue is collected by the federal government, which then allocates funding according to state requirements and its own policy agenda. Some states impose income tax on their individual and corporate residents; Nevada is not one of them, and has benefited from the immigration of tax exiles from states which do impose such taxes. What Nevada does, though, is impose ad valorem indirect taxes, in particular sales tax, which account for more than 66% of its 2011 state budget, the 5th highest such proportion in theUS. By comparison, gaming tax revenue will only represent about 8.7% of state revenue in 2011. Contrary to what has become conventional wisdom, Nevada is not a low tax jurisdiction; In fact, Nevada ranks 16th among the United States in direct Back to Basics A defence of Macau’s approach to taxation of gaming revenue