Inside Asian Gaming

INSIDE ASIAN GAMING | February 2013 36 FEATURES restaurants, and high-end shopping malls shouldnot have toendure a time-consuming and expensive visa application process. Bilateral agreements between neighboring countries allowing would-be tourists visa- free access to gaming-entertainment zones significantly enhance visitation. Singapore again stands as an excellent example. 4. Reasonable Gaming Tax Rate Few people outside of the gaming industry have a true appreciation of gaming taxes. There is generally a mistaken belief that taxes are paid from net income. Rather, they are paid from top-line gaming revenue before operating expenses are deducted. Also, unlike taxes on cigarettes, liquor or gasoline, gaming taxes are paid by the operator—not the consumer. Inordinately high tax rates limit casino developers’ profits, and hence their ability to construct non-gaming amenities. Casinos in the United States offer a number of examples. In the state of Nevada, where gaming taxes are 6.75% of gaming revenues, casino operators have been able to construct a wealth of non-gaming amenities such as hotels, restaurants, convention centers and shopping malls. A low gaming tax rate helped transform Las Vegas from a small city in the desert into an international destination with over 150,000 hotel rooms, millions of square feet of meeting space and a resident population of 2 million. In the state of New York, where taxes at racetrack casinos exceed 60% of gaming revenues, no such non-gaming development has taken place. Those casinos are nothing more than warehouses with slot machines. Faced with such a high tax rate, casino operators simply cannot risk the capital to invest in non- gaming amenities. One racetrack casino in the state of Rhode Island, where the gaming tax hovers at 60% of revenue, risked a major capital investment in non-gaming amenities and was forced into bankruptcy. Rhode Island’s state government, with its myopic focus ongaming taxes, continues tomaintain this high tax rate and, with new competitors opening in adjacent states, will soon see its prized source of tax revenue wither away. Gaming operators also need stable tax environments where the tax rate does not increase whenever government needs more money. Again, the United States offers an example. In the state of Illinois, legislators eagertoreducetheirbudgetdeficitarbitrarily increased gaming taxes on its casinos. Illinois taxes gaming revenues on a graduated basis and increased the marginal tax rate on the highest bracket of revenues from 50% to 75%. The results were immediate and catastrophic. Marketing expenditures were reduced; capital investment ceased; gaming revenues declined and employees were laid off. Only after witnessing the impact of their actions did Illinois legislators reverse their decision. 5. Sound Regulatory Environment While it may seem counter-intuitive, gaming companies desire and often demand a sound, stable and effective regulatory authority. The reasons for this are simple. For a casino operator with multiple operations, an infraction of gaming regulations in one jurisdiction can impact the gaming license in another jurisdiction. Multinational corporations will not enter markets where gaming regulations are loose or where there is a culture of complacency and cronyism. They will also not enter markets where government is both regulator and operator. 6. Establish Clear Economic Goals What does government hope to achieve with casino-resort development? Is it primarily tax revenue, job creation, tourism, Model of efficiency—Singapore’s Changi International Airport Decidedly low-key—Newport Casino, Rhode Island Sound regulator—multinational corporations will not enter markets where gaming regulations are loose or where there is a culture of complacency and cronyism.