Tax changes ring investor alarm bells

Russia has passed a bill that doubles tax rates for both land-based casinos and bookmakers, with even more hikes in the pipeline, raising concern the ever shifting sands of regulation are changing the outlook for the industry and threatening foreign investment.

Steve Gallaway, managing partner at Global Market Advisors, says the “changes to the tax regime are devastating for the IEZ (Integrated Entertainment Zone) in Primorye,” referring to the most developed of Russia’s gaming zones.

In late November, Russian President Vladimir Putin signed a bill into law that doubles the gambling tax rates local governments are allowed to levy. The Finance Ministry also recently reiterated there is more to come, saying it plans to boost gambling taxes tenfold by 2020. Though in late December, the law was amended again to exclude casinos from a controversial requirement to collect tax on winnings.

Ho sells Summit Ascent stake, steps down as chairman

Lawrence Ho has sold his entire stake in Summit Ascent Holdings and stepped down as chairman of the company. Ho held 1.34 percent directly and a further 16.03 percent through his wholly owned Quick Glitter company. He began paring down his holdings in September, cutting his stake from 27 percent to 17 percent.

Summit Ascent appointed Kuo Jen Hao as its new chairman. Kuo chairs Taiwan-listed shipping operator First Steamship Co Ltd, which recently announced that it intends to acquire a 12.67 percent in the operator. 

Bookies say tax to favor online business

Russia’s latest tax hikes are likely to hobble expansion of land-based bookmakers, favoring a push to the online sector, Darina Denisova, head of the Bookmakers Self Regulatory Organisation, warned. Online bookmakers will find it easier to comply with new tax requirements due to their lower cost base. “Our industry got used to surviving and developing despite circumstances. And land-based bookmakers, who focused on developing their networks of betting shops, as opposed to online ones, will be primarily affected and they are likely to already be drafting new plans to diversify client services,” she said.

The tax proposals from the federal government, which is seeking to close a widening budget gap, have cast further uncertainty onto the stability of the regulatory framework in Russia. In 2009, President Vladimir Putin announced he was shutting down the country’s casinos and setting up a series of five gambling zones in remote locations around the country. Since then, new zones have been proposed and some existing ones, such as Azov City, told to close.

Unlike in Macau and most other jurisdictions, Russia doesn’t levy tax on a percentage of gaming revenue, but charges a fee on each gaming table and machine in operation. Local governments can set their own tax rate based on a range stipulated by the Russian Federation’s tax code.

Summit Ascent Holdings, the operator of Tigre de Cristal in the Primorye zone, told local authorities that the changes could have a potential negative impact on the bottom line.

The company said it had contacted the local government and been told that the authority intends to propose to the local Duma that taxes be maintained at current levels as they already fall within the stated range.

Primorye charges RUB125,000 per table and RUB7,500 per slot machine. However, it said there is no guarantee that the Primorsky Duma would approve such a proposal. The company estimated that if the draft bill becomes law and the Primorsky authorities opt to levy gaming tax at the highest possible rate permitted, there would be “a negative impact of approximately RUB9.02 million on the monthly gaming tax payable by Tigre de Cristal, equivalent to an annual negative impact of approximately RUB108.24 million (approximately $1.86 million).

Gallaway said the tax changes are likely to affect future investment plans. “I would expect that this sudden increase would result in other potential developers deciding not to move forward with their plans in eastern Russia. With such an unstable regulatory environment, an operator would be remiss to place fresh capital into the Vladivostok region,” he said.

“The IEZ had the potential to increase tourism to Vladivostok and be a showcase to the world. Unfortunately, the lack of stability in Russian public policy has killed this opportunity.”