Inside Asian Gaming

INSIDE ASIAN GAMING | August 2011 10 machines, their game styles and denominations, compared to the machines in the casinos. The drop box taxation system prevented the clubs from using ticket in ticket out technology (TITO) of the sort used throughout Singapore’s casino resorts. It also prevented the clubs from going completely cashless. Casinos have also been very successfully operating low denomination games—at two cents and five cents, in 25-line, 50- line, and 100-line game formats. Clubs—again due to their taxation regime—were forced to operate higher denominations like 20 cents and 50 cents, with in the main only five-line and eight-line game formats. After the two casinos opened, the success of their low denomination, 50-line machines overwhelmed the clubs. Many of the club players literally flocked to the casinos, resulting in the clubs seeing around two thirds of their business disappear almost overnight. The S$100 casino entry levy had no effect in limiting the flow of key local players away from the clubs. Even before the arrival of the casinos, though, the clubs had been negotiating with the Singapore taxman for a new system to allow them to be more competitive in the local and regional leisuremarkets.With the advent of the casinos, the pressure for this change became urgent. In the final quarter of 2010, IRAS began consultation with the clubs and gaming machine manufacturers and agents to evaluate the situation. They received numerous submissions all focusing on a profit tax to replace the cumbersome and limiting coins in the drop box calculation. Those taking part in the talks cited in support of a profit tax the fact that such a system was already in place in slot clubs in Australia, the UK and the USA. They also pointed out that Singapore’s casinos were paying tax on profits, rather than on handle. Modest reform IRASrejectedtheprofittaxproposal.Inearly2011,IRASannounced to the industry it was going to introduce instead a tax levied at 9.5% of turnover for each of the slot clubs in Singapore. It added, however, that requirements such as the 200-credit lock-up and coin operation would be removed as part of an effort to modernise the taxation and oversight of the clubs. The required changes to legislation were approved by the Singapore Parliament early in 2011. From 1st May, all clubs have changed over to the turnover tax system, which represents a slight drop in the clubs’ tax burden. The 9.5% turnover tax works out to a 54% tax on net gaming revenues, as set against the 15% tax paid by the casinos. When the clubs paid the equivalent of 60% tax on net gaming revenues, that was a rate four times higher than the casinos. Now the clubs’tax burden is equivalent to 3.6 times that of the casinos. It’s not a huge improvement, but better than nothing. Nonetheless, Singapore remains the only jurisdiction in the world I know of that taxes publicly-owned gaming—the slot clubs— at a higher rate than privately-owned gaming. The IRAS decision to go with a turnover tax system effectively means the clubs are still locked into a lower RTP than the casinos. They can’t set their RTP any higher than 82% or 83%. Were they to do so, they would have to raise the entry cost of betting on their slots (in terms of minimum numbers of lines) in order to stay profitable. When the government taxes 9.5% of turnover, that leaves 90.5%. Out of that, clubs need at least 6% of turnover to run their businesses, pay wages, meet other costs and make a surplus. That leaves 84.5%. Clubs then need to run promotions and provide jackpots, accounting for another 1.5% of turnover. To cover all those overheads and still be modestly profitable, the club machines’ RTP cannot be set much higher than 82.5%. Not surprisingly, the clubs and their supporters have heavily criticised the IRAS reforms as being half-hearted—especially as 100% of the clubs’ profits are ploughed back into the community. It’s true that casinos appear to have had a significant positive impact on Singapore’s tourism revenues as well as on the tax system—as the government intended. But their profits are solely for the benefit of private and institutional shareholders. Turnover taxes have been tried in other major gaming jurisdictions such as New South Wales in Australia, but have failed. They have subsequently been replaced with taxes on profits. The new club tax system is simpler and easier to administer than its predecessor, but a wide gap still exists between the ways casinos can do business with gaming machines, and how the clubs can operate with them. Clubs are still barred from giving players bonus points based on turnover, yet the casinos are allowed to do so. The focus of the new club tax system is on turnover, yet the clubs Uphill struggle—Singapore’s slot clubs pay the equivalent of nearly four times the profit tax levied on the city’s casinos