The announcement of the Malaysian budget on Friday gave the Malaysian gaming industry a negative surprise as casinos and slot factories were not spared tax rises.
According to the government’s budget, casino license fees will be raised from $128.8 million to $150 million annually, while casino tariff rates will be raised from 25% to 35% of total gaming revenue (GGR). The gaming console tariff will be raised from 20% to 30% of the total collection.
Investment analysts covering Malaysia’s gaming industry said investors had previously set a price to raise the country’s gaming tax but did not expect a sharp increase as announced by Malaysia’s finance minister on Friday. The gaming tax has been unchanged since 1998, when the tax rate was raised from 22% to 25%.
“Casino user fees and tariff rate increases are the biggest on record,” said Samuel Yin Sao Yang of Maybank Kim Eng Research.
“With a new casino tariff rate of 35%, an effective sales and services tax of 3.7%, and a corporate tax rate of 24%, Asia’s heaviest taxed casinos include “Resorts of Thrones World Genting,” In added in a note on Sunday. “Macao casinos are also taxed at 39% of total gaming revenue, but are exempt from corporate tax.”
Genting Malaysia, part of Malaysian conglomerate Genting Bhd, runs Resorts World Genting, Malaysia’s only casino resort, and operates casinos in the United States, the Bahamas, and the United Kingdom.
Japanese brokerage Nomura said other tax increases such as annual licensing fees and dealer licenses, along with a 10% point increase in Malaysia’s gaming tax, were “extremely punitive and make the gaming sector less attractive” to investment.
“We estimate that before interest, taxation, depreciation and amortization for the 2019 and 2020 fiscal years, the impact of $600 million to $700 million on Genting Malaysia earnings and net income, which would offset much of the revenue growth expected from Genting’s significant capital expenditure over the past five years with new capacity,” analysts Tushar Mohata and Rahul Dohair wrote in a note on Sunday.
Maybank’s Mr Yin said his agency estimates the government-announced increase in casino licence fees and tariff rates will cut Resort World Genting’s EBITDA margin by 9 percentage points, from 25% to 26%. Maybank cut Genting Malaysia’s revenue estimates for fiscal 2019 and 2020 by 32% and 29%, respectively.
Both stockbrokers said parent company Genting Bhd would better absorb tax increases due to various business models and contributions from Genting Singapore Inc, the operator of the resort world’s sentos.
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