Casino Taxation System Remains Point of Contention

Even at this late stage, the Japanese government’s policy on the taxation of casinos and IRs remains both unclear and a point of contention.

In most developed nations, most of these details would have been included in the basic legislation, in this case the July 2018 IR Implementation Act, but as with most other aspects of IR regulation, the legislation passed by the National Diet includes little concrete guidance, but is instead mainly a blank check for the Abe government and the bureaucrats to fill out as they will.

Opposition lawmakers complained bitterly about this fact at the time. When tax authorities were called in to testify in Diet debate, their usual answer was that the policy was still being studied and that they had no details that they could yet provide. The ruling party forced through the legislation with little more than a shrug that said, “We’ll figure it out later.”

A year and a half later it still hasn’t been figured out.

Many of the international IR operators have clearly grown impatient, though they don’t want to be seen as troublemakers or as openly lecturing to the Japanese government.

With each of these local government RFIs, RFCs, and RFPs, the operators have to do their own internal calculations about projected revenues, optimal levels of investment, and the rate at which they will recover their investments. The lack of clarity about taxation makes these calculations much more difficult, and consequently makes settled proposals nearly impossible.

The latest concern on the taxation front are the proposals in regard to the gambling winnings of foreign tourists.

The proposed system would require Japan’s three casino operators to keep and store records of each individual gambler’s purchase of chips upon entering the casino, the amount of chips converted into cash when leaving, the amount of chips purchased at the gambling tables, and the results of each game.

The tax authorities would then use these records to determine if foreign tourists need to pay up before leaving the country, depending on the tax treaty that Japan has with each country.

Chinese visitors, for example, would be forced to pay the Japanese tax man, while South Koreans would be responsible only to their home government.

The ruling coalition had planned to endorse this proposal this week, but has now delayed any decision until next year.

“The burden on the business operators will be heavy, and it may reduce investment in Japanese casinos,” fretted one lawmaker to the Japanese media.

Although not reported in the national media, it is not hard to guess that the concerns of some pro-IR lawmakers about the taxation proposal are actually coming from the international IR operators who have been telling their friends among Japanese politicians that the proposals are too onerous and possibly not even practical.

One suspects that this could have an impact on future VIP revenues as well.

Macau now seems to be moving in the overall direction of mainly serving the Chinese mass market, while Chinese VIPs are increasingly looking further afield to new markets such as the Philippines, Cambodia, and Vietnam.

Japan, too, may attract a solid share of this VIP market as well, but some of them might also be scared off by heavy-handed taxation policies insuring that the house always wins big. Not only are the odds of losing the casino game always a little higher than the odds of winning, then having an all-too-diligent Japanese tax man—who didn’t share any of the downside risks—come and take his cut as well, may be too much to bear.

Regulatory uncertainty is rightfully spooking some of the IR operators at this juncture, and what ought to spook them even more is the dubious democratic legitimacy of the entire casino legalization project in Japan. Most of the Japanese people are still quite opposed to building IRs in their nation, and unless policymakers and industry representatives do a better job making the public case, this could lead to multiple policy failures in the future. (AGB Nippon)