Gaming machine levies up one-third
Malaysian’s new budget, presented by the country’s finance minister on November 2, included unwelcome tax hikes for casinos and slot halls.
The casino license fee will increase from MYR120 million (US$28.8 million) to MYR150 million and the tax from 25 percent to 35 percent from 25 percent of gross gaming revenues. Gaming machine duties will rise from 20 percent to 30 percent on gross collection, reported GGRAsia.
Analysts expressed surprise at the increases, as taxes on the gaming sector have been unchanged since 1998. At that time, the rate increased from 22 percent to 25 percent. Samuel Yin Shao Yang of Maybank Kim Eng Research called the casino license fee and duty rate hike “the largest on record.
“The new casino duty rate of 35 percent, effective sales and service tax of 3.7 percent and corporate tax rate of 24 percent, ‘crowns’ Resorts World Genting as the heaviest taxed casino in Asia,” Yin said in a November 4 note. “Macau casinos are also taxed at 39 percent of gross gaming revenue, but they are exempted from corporate tax.”
Japanese brokerage Nomura called the increases “extremely punitive” and said they will “diminish the investment appeal of the gaming sector.” They will be especially hard on Genting Malaysia, which runs Resorts World Genting, Malaysia’s only casino resort.
“We estimate a MYR600 million (US$144.2 million) to MYR700 million (US$168.2 million) impact on Genting Malaysia earnings before interest, taxation, depreciation and amortization and net income for fiscal years 2019 and 2020, which would offset a big chunk of the earnings growth expected from Genting’s substantial capital expenditure into new capacity over the past five years,” wrote analysts Tushar Mohata and Rahul Dohare.
Yin said the casino license fee and duty rate hike will cut Resorts World Genting’s EBITDA margins from 9 percentage points to 26 percent. Maybank cut Genting Malaysia’s earnings estimates for fiscal years 2019 and 2020 by 32 percent and 29 percent respectively.
However, noted the Nomura team, parent company Genting Bhd’s “diversified business model, relatively resilient earnings contribution from Singapore, along with its recent share price correction, means that the earnings impact on Genting should be less than on subsidiary Genting Malaysia.”
In its report on the matter, Inside Asian Gaming cited Tan Sri Dr T. C. Goh, head of the Federation of Chinese Associations Sabah, who told the Borneo Post that the casino “could be even more well-known than our country itself. It is a must-visit destination for many tourists from China.” He said major tax hikes on Genting Malaysia could cause a slump in Chinese tourism. A November 5 report from Bloomberg News said Genting Malaysia Bhd. had its worst one-day fall ever as analysts downgraded the stock. Shares fell as much as 30 percent for the Malaysian subsidiary, and Genting Bhd. fell as much as 12 percent.
