Macau officials exploring tax cut, relaxed "satellite casinos" requirements in new gaming law draft

Macau is considering the introduction of a tax cut and revised conditions for "satellite casinos" as the city’s gaming industry -the world’s largest gambling hub in pre-pandemic years- continues to struggle amid the ongoing impact of Covid-19. The possibility comes as casino revenue plunged to an 18-month low in April.

According to Bloomberg, the city is considering a potential cut of as much as 5% on casinos’ gaming revenue if they are able to bring in players from outside of China. The change would be included as part of ongoing efforts to revise the hub’s gambling bill, with legislation to that end currently in discussion at Macau’s Legislative Assembly (AL).

According to the cited source, share prices of the city’s licensed casino operators soared in the US on Friday after local media reported the proposed revision. Las Vegas Sands and Melco Resorts & Entertainment rose 15% each, while Wynn Resorts jumped 13%.

Macau currently taxes casino operators about 40% of gaming revenue. According to reports, the government believes the industry has been relying on mainland China too much as a source of gambling customers. Changes would seek to modify this current scheme by exempting part of the taxes as an incentive to encourage operators to attract more overseas customers while also enforcing stricter rules for mainland gamblers, although details of the plan are yet to be clarified.

The tax cut proposal is part of general efforts to ease provisions on the new gambling bill currently in discussion at the AL, which is expected to pass by the end of June. The move has been interpreted as a signal city officials intend to continue their support of the gaming industry, which accounts for about 80% of government income.

In addition to a Beijing crackdown on high-rolling gamblers and junket operators that provided services and credits to them, the Macau sector has seen travel restrictions bring down visitation and hotel room occupancy to lows unthinkable in pre-pandemic years. Coupled with tough regulations proposed in the new bill, this led to a general sense of uncertainty among operators.

But the tax reduction could be the news the industry has been waiting for: a maximum tax cut of 5% would be equivalent to a boost of 12% to 15% to the estimated industry EBITDA for the coming two years, a JPMorgan Chase note on May 14 said.

“The fact that the government tries to support the industry by further revising the law supports our view that the license renewal process is unlikely to bring in major disruptions and that the Macau government is accommodative to, if not sympathetic to, the industry,” wrote analysts including DS Kim. 

Some of the toughest provisions still in place in the proposed bill include a requirement for operators to reach a minimum revenue amount or face extra payment to the government, as well as a ban on junkets operating rooms within casinos or sharing revenue with them. While it is not yet clear if officials are willing to revise these, they may relax on “satellite casinos.”

Satellite facilities run under a license attached to one of the city’s concessionaires, but are operated by third parties on individually owned premises. While the government initially suggested banning operators from running gambling areas in properties not owned by them -meaning they would have to buy satellite venues from third-party partners, a move many doubted would occur, leading to their closure- authorities are now exploring alternatives.

Local media says authorities would ease down these regulations so satellite casinos could continue their operations. A new version of the general gaming law would permit satellite casinos to run gaming even if the properties where the venues are located are not completely owned by a gaming concessionaire, the Legislative Assembly’s standing committee revealed.

Chan Chak Mo, head of the Standing Committee

An amended version has now been provided by the government to the commission, and legislator Chan Chak Mo -head of the committee- estimated that after two or three more meetings the standing committee would be able to sign off the final draft and submit it to the AL plenary for voting before June 26.

The new version allows for satellite casinos to continue operating as a managing entity if a contract is established with the operator and approved by the Chief Executive, reports Macau Business. The changes follow several reports that satellite casinos could close, leading to an increase in the levels of unemployment in the city.

The cited source further reports that another change to the gaming law draft allows for a gaming concessionaire that loses its license to continue exploring non-gaming operations: restaurants, hotels, and other activities.