NOTICE – Death by a thousand cuts

António Lobo Vilela is a Macau-based attorney and the author of the Macau Gaming Law Book (

The gambling law amendment was finally approved, ending a troubled process that began nine months earlier with the launch of a contentious public consultation and without prior consultation with casino operators.

Among the changes introduced, the broadening of the range of financial obligations (fiscal and parafiscal) of future concessionaires stands out.

Although in a normal economic situation they may make sense, in today’s domestic (“zero economy”) and external environment (with particular emphasis on the restrictions imposed by mainland China on citizens wishing to travel for game”), they will certainly have a negative impact on the lives of Macau casino operators.

The financial obligations are, in addition to the special gaming tax, which remains at 35% of the gross gaming revenue, as follows:

– “Contribution” of 2% of the gross income from the games to a public fund (not necessarily the Macau Foundation) whose purpose is the promotion, development or study of actions of cultural, social, economic, educational, scientific, academic and philanthropic character. Set in 2002 at 1.6% of gross gaming revenue, the new percentage represents an increase of 0.4% in the direct tax burden.

– “Contribution” of 3% of gross gaming revenue to urban development, tourism promotion and social security. Set in 2002 at 2.4% of gross gaming revenue (1.4% for SJM), the new percentage represents an additional 0.6% (1.6% for SJM) of the direct tax burden.

– Minimum of 5 billion patacas of registered capital and net stand for the duration of the concession. The new minimum registered capital is 25 times the currently fixed registered capital (200 million patacas), and there is no distortion of commercial law rules regarding net position. To understand (or not) the logic of the system, the new minimum share capital is 50 times greater than that required to open a bank (100 million patacas).

– Bond as security for the fulfillment of legal and contractual obligations. Fixed in 2002 at 700 million for the first five years of the concession and 300 million for the remaining period, it is expected that the Macau government will revise the values ​​upwards since they represent values ​​from over 20 years.

– Payment of additional tax on profits and dividends. Since 2002, the government of Macau has granted casino operators (very) generous tax exemptions, exempting all profits from gambling activities from this tax. And authorized a lump sum payment instead of additional tax on dividends distributed to shareholders. In several responses to written interpellations from members of the Macao Legislative Assembly, the Macao government has consistently justified tax breaks to prevent the same income from being taxed twice. Curiously, no amendment to the Gaming Act has been made in this regard. Can this be seen as a paradigm shift, with the principle of normal taxation of supplementary income tax now being fully applicable? Is the Macao government aware that this fact pushes the final tax burden above the 50% mark?

– Remuneration due for the use of casinos and gaming equipment and utensils, which will revert to the Macao SAR at the end of the concessions and sub-concessions (because once the retrocession is made, the casinos can no longer be sold by the Macau SAR). It includes, as it could not be otherwise, the remuneration for the use of the casinos which, although legally not obliged to return to the Macao SAR, were, kindly and certainly without coercion, “handed over” free of charge by the concessionaires and sub-concessionaires for retrocession. What criteria will be used to determine the remuneration for use? Market price?

– Premium (in compensation for the allocation of the concession), divided into a fixed part (set in 2002 at 30 million patacas) and a variable part, depending on the type of tables operated (established in 2002 at 300,000 patacas/year for each VIP table and 150,000 patacas/year for each non-VIP table) and 1,000 patacas/year for each slot machine, with a minimum guarantee of no less than 45 million patacas/year. Using the same criteria to determine the (special) premium charged for the extension of concessions and sub-concessions, the new fixed part of the premium should not be less than 95 million patacas/year. As for the variable part of the bonus, we will see what awaits the dealers, hoping that the Macau government has done its homework and learned its lesson, realizing that it makes no sense to keep it among the award criteria. concessions, where it appears as the value to be offered by the concessionaires.

– Special bonus, corresponding to the special gaming tax due to the difference between the gross income generated by gaming tables and gaming machines and the minimum threshold set by the general manager. It is a mystery what criteria will be selected to determine whether the gross gaming revenue of a table or gaming machine located, for example, at Casino Lisboa, should be higher/lower than those found in any other casino when the data that could serve as a reference refers to a reality that no longer exists, either because it is based on the junket operation or before the restrictions imposed by mainland China on gambling.

– Investment plan, the value of which was set in 2002 at a minimum of 4 billion patacas for 20-year concessions. The amount of investment for the 10-year concession period (which should be put out to tender) is expected to be 5 billion patacas. The Macau government has stated in the past that the requirement for new registered capital was motivated by the fact that it wanted future concessionaires to have sufficient funds to execute the investment plan (unknowing that the registered capital does not serve this purpose, but as a general guarantee for creditors and as a means of limiting the liability of shareholders). Since new physical developments are unlikely to be required, it remains to be seen what kind of investment casino operators will be “forced” to make.

– Bank guarantee to ensure compliance with labor debts. Variable according to the number of employees, it was set within the framework of the concession and sub-concession agreements at 3.5 billion (SJM), 2.31 billion (Venetian), 1.63 billion (Galaxy) and 1. 21 billion (Wynn), and 820 million (MGM and Melco).

– Full coverage of gaming chips in circulation and joint and several liability of eligible shareholders (5% or more) for gaming chips in circulation at the end of the concession. It is unclear whether the Macau government has previously ordered provisioning, adopting solvency ratios or enforcing other prudential rules on tokens in circulation. The new measure ends a casino operator’s significant source of funding (at near zero cost).

– The corporate social responsibilities that dealers must assume. Given the legal framework, the government of Macao expects concessionaires to meet public needs that they must develop or meet with public money. Without the determination of precise limits, this obligation can turn into a white elephant.

With the exception of the exemption or reduction provided for the payment of additional income tax and the exemption or reduction of the percentage of contributions due, the legislator has not created – where it could and should – safeguard mechanisms to activate in times of economic turmoil. The rigidity of the law is not compatible with disrupted economic cycles such as the one we are currently experiencing. It’s one thing to have back-up mechanisms. It is quite another to use these safeguard mechanisms.

And the example of “expanding customer markets from abroad” as the justification of the public interest required for the Chief Executive to “give a reduction or exemption to concessionaires in the payment of contributions” does not seem not make sense. In fact, in the opinion of the 2nd Standing Committee of the Legislative Assembly on the Gambling Law Amendment Bill, it seems that the intention of the Macau government is not to reduce dues by more of 1% when he states that “when deciding on the reduction or exemption, the General Manager, on the assumption that he will ensure that the percentage of the current concessionaire’s contributions does not fall below the level current [4%], will fully assess the benefits that the concessionaire will bring to Macau at all levels, the reduction focusing on the revenue generated by foreign tourists with the expansion of markets”. What makes the government of Macau think that concessionaires will be interested in taking advantage of the 1% discount when, for example, for over 20 years they have shown no interest in providing dredging services to benefit from 1% less in the payment of contributions from which SJM has always benefited? How much will they have to spend to benefit from such a percentage?

What objective criteria could be used? Better yet, what are the criteria compatible with the (new) mainland Chinese policy on gambling, reflected, among other things, in the restriction of movement of citizens wishing to travel for “gambling activities” or the “warnings” given foreign countries to stop soliciting and promoting the game to their citizens? What mechanisms will be put in place? Are we going to have air bridges with third countries? Traveling by plane free of charge? Player tracking to find out which casino operator brought them if they played, and how much they spent? Do players want to be followed? And if they play at another casino operator, who benefits? And will the link monopolies that Air Macau only partially exploit be reviewed? Will casino operators finally have a say in the development of Macau Airport and Macau as a regional airport hub? Which makes the Macau government think that casino operators will do better in its years-long effort to promote Macau throughout Asia through the companies representing the Macau Tourism Board, especially in India. , Indonesia, Thailand, Korea, Japan and Malaysia. ?

Whatever criteria are used, they will always have the huge disadvantage (promoted by the Macao government itself) of making exactly equal concessions operating under different fiscal/parafiscal charges, which will be a source of problems in the medium- long term.

Fortunately, the Macao government has not changed the stamp duty so that dealers in (still) Macao’s most crucial industry will, as in 2002, only pay 50 patacas in stamp duty for the signature of concession contracts…

Pious or not, all financial obligations without proper safeguard mechanisms make casino operators more economically vulnerable and, in the unfavorable economic situation in which they will be implemented, can represent death by a thousand cuts for the gaming industry. .

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