brazilian gaming congress 3e - presentation - v5 - lannes

Land Based Casinos

Fiscal implications of setting up business and manufacturing in Brazil

By Federico Lannes International gaming consultant

When compared to other emerging economies, Brazil relies on major comparative advantages such as:

World’s 7th largest economy huge territorial extent, with plenty of natural

resources, some of them entirely unexplored; enormous population (204 millions ) with a

dynamic and fast growing internal consumer market, a tendency being boosted by the income resulting from the sharp drop in the inflation rate;

Brazil is one of the main economies that receive foreign direct investment

Deep-rooted, dynamic, and profitable capitalist economy with availability of skilled labour force, including management levels;

Key Considerations when investing in Brazil

Strenghts

Productivity growth in the country is sluggish Complex tax and labor regulatory environment

with High taxes and social charges on payroll Considerable bureaucratic rules for certain

businesses and industries. Infraestructure investment is still lacking Many of Brazil’s sectors are still highly guarded

with protectionist import taxes Brazil is ranked 116 out of 189 countries in the

World Bank’s Doing Business ranking.

Challenges

Source: World Economic Forum / Global Competitiveness Report 2016

World Economic Forum The Global Competitiveness Report Survey

World Bank - Doing Business in Brazil2016 Report

Doing Business World Bank Ranking sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations. It ranks 189 countries.

Report available at: http://www.doingbusiness.org

Report Assumptions for rank Comparison with other countries

It Is a limited liability company (or its legal equivalent) Located in the largest business city (Sao Paulo) 100% domestically owned with five owners, none of whom is a legal entity. Has at least 10 and up to 50 employees, all of them domestic nationals. Performs general commercial or industrial activities. Leases the commercial plant or offices and is not a proprietor of real estate.

http://www.doingbusiness.org/

http://www.doingbusiness.org/

How Brazil and economies rank on the ease of doing business

Source: World Bank – Doing Business in Brazil 2016 Report

THE BUSINESS ENVIRONMENT

Doing Business ranking introduced the distance to frontier score.

The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business

Source: World Bank – Doing Business in Brazil Report 2016Rankings on Doing Business topics - Brazil (Scale: Rank 189 countries, Number 1 Best Performers).

Doing Business environment Indicators in Brazil World Bank 2016 Report

Brazil has more than 60 types of taxes, in a Federal, State and Municipal scope.

On the ranking of working days to pay annual taxes, Brazil is in the second position. A citizen must work 150 days in order to pay its taxes, and the taxes account for 36,3% of the GDP.

This average is different considering each type of social classe in Brazil:

Low wage (until R$ 3.000): 143 days -> 39% of personnal wage

Medium wage (from R$ 3.000 until R$ 10.000): 159 days -> 43% of personnal wage

High wage (more than R$ 10.000): 152 days -> 42% of personnal wage

TAXATION Increasing life cost in the country

Source: AmCham Brasil

Paying Taxes in Brazil and economies rank on the doing business Report

Doing Business ranking introduced the distance to frontier score.

The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business


PAYING TAXES

Why tax administration matters

Efficient tax administration can help encourage businesses to become formally registered and the economy to grow—and thus expand the tax base and increase tax revenues.

In many transition economies in the 1990s, failure to improve tax administration when new tax systems were introduced resulted in very uneven imposition of taxes, widespread tax evasion and lower-than-expected revenue.

Tax burden at the car automotive industry

Compliance with tax laws is important to keep the system working for all and to support the programs and services that improve lives.

One way to encourage compliance is to keep the rules as clear and simple as possible.

Overly complicated tax systems are associated with high evasion.

The costs to businesses are eventually passed on to consumers in the form of high prices and reduced purchasing power.

Total Tax rate index in selected countries as % gross profit (World Bank)

EconomyPaying Taxes

rank

Payments (number per

year)

Time (hours per year)

Total tax rate (% of

profit)Argentina 178 9.0 359.0 106.0

Brazil 181 9.6 2038.0 68.4Chile 120 7.0 291.0 30.5

Colombia 139 12.0 239.0 69.8Ireland 5 9.0 82.0 26.0

Malaysia 61 9.0 164.0 40.0Mexico 114 6.0 286.0 52.0Panama 170 52.0 417.0 37.2

Peru 105 9.0 260.0 35.6Uruguay 113 20.0 271.0 41.8

The “Brazil cost” also creates a direct barrier to productivity growth by discouraging small businesses from entering the formal economy.

Smaller and less efficient firms operating in the gray market can gain cost advantages over more productive and law-abiding firms by ignoring quality and safety regulations or avoiding taxes.

They also lack incentives to invest and to achieve economies of scale, as growth might attract the attention of authorities.

Cost of Paying Taxes by Country World Bank Report


12

Future Challenges: Taxes (Brazil Cost)

Improve competitiveness by lowering the “Brazil cost.” Brazil has too many barriers to growth. Its business environment needs serious reform to match the ease of doing business offered by other countries.

Rethinking the public sector’s overall incentive structureCan shift the focus from following procedures to achieving clearly defined results. Few of Brazil’s government departments have gone fully digital, so there is ample room to make large gains in efficiency by integrating technology solutions

Reestructuring tax system. Brazil could also benefit from revisiting its tax structure—not only to reconsider taxation levels through the lens of global competition but also to simplify its, multilayered tax code.

Even with its challenges, Brazil remains an opportunity that is hard to resist. Its economy is well positioned globally thanks to its size and interaction with other economies

Gaming Taxes in America

Source: Global Betting & Gaming Consultants

Jurisdiction Tax Change

Argentina The 25% tax on gaming machines was introduced in 2013, while in 2014, the gaming tax was supposed to getincreased from 16% to 22%

Panama Casino tax raised twice, from 10% in 2010 to 15% in 2012; machine tax raised several times from 10% in 2010 to 22% in 2014

Mexico Gaming tax up from 20% in 2008 to 30% in 2010

Chile 20% of Gross Gaming Revenue; provisionalmonthly payment; entrance tax

Canada Gross revenue from casinos, in most of the cases, casinos have to pay an average 20% of their gross winnings

Gambling Taxes in Europe

Jurisdiction Tax Change

Italy 20 to 25% Gross Profits

Belgium 11% Gross Profits

Denmark 20% Gross profits

Spain 25% Gross profits

France Sports 9.3% Horses 13.2% Poker 2% Cash Game Pot VAT 20%

Germany 5% tax amount staked for sports and lotteries.VAT at 19% for egaming.

Ireland VAT Ireland 23%

Source: Global Betting & Gaming Consultants

Jurisdiction Gaming Tax(Based on Gaming Gross Revenue)

Corporate Tax(Based on Pre-Tax

Profit)

Numbers of Casino

(2013)

Tax revenue(USD,2012-2013)

Taiwan 15~17% 17% - -

Singapore 5%+7%(VAT) for revenue from VIP15%+7%(VAT) for revenue from mass

17% 2 10 billion

Macau 39% N/A 35 160 billion

Malaysia 25% 25% 4 700million

Philippines 15% for premium players25% for other players

N/A 19 350 million

Vietnam 20% 30% 3 80 million

Vladivostok 3,750 USD per table 225 USD per slot

20% 4 -

Gambling taxes in Asian Countries

Source: Lin & Partners Attorneys-at-Law

Las Vegas Casino Taxes

Graduated tax rate with a maximum tax of 6.75% on (GGR) Gross gaming revenue.

Additional fees and levies may be imposed by counties, municipalities and the state, adding approximately 1% to the tax burden ( Source AGA 2009).

No state corporate income tax in Nevada.

Federal corporate income tax is progressive between 15% to 39% based on taxable income. Assume 35% for big companies.

Source: HUANG, Guihai (Samuel), Ph.D., Professor of the Macao Polytechnic Institute

Singapore Casino Taxes

Casinos are operated by the two Integrated Resorts (IRs), Marina Bay Sands and Resorts World Sentosa

GGR generated from premium players will be taxed at 5% while GGR from all other players will be taxed at 15% on a monthly basis.

(A premium player is a person who maintains a deposit account with minimum amount of $100,000 before he starts playing any game in the casino. )

Corporate income Tax is 17%


History of Casino Tax in Macao

25% of GGR in 1983 Increased 1% annually to 30% in 1991 Further increased to 31.8% in 1996.

A extra pre-determined fixed premium and other liabilities was introduced in 1996(?) :

Contribute 1.6% of GGR to Macao Foundation,

Maintain the navigation condition of Macao water area, tourism promotion, etc.

STDM operator had been paying 33.4% of GGR plus other liabilities before 2002.


Before 1982, the casino tax had been in the form of annual concession (license) fees and extra fixed Contribution to government funds (such as tourism fund (Legislative Law No.1496, 1961).

That is a marginal tax rate zero

Current Casino Taxes in Macao

Special gaming tax Macao Foundation

For city development, tourism promotion, and social security

35%+ 1.6% (up to 2% )

+ 2.4% (up to 3%)

+ Annual License Fees (Premiums) : Fixed: USD 3.750.000 per concessionaire Variable:

• USD 37,500 per VIP table• USD 18,750 per non-VIP table• USD 125 per slot machine

Casino actual tax rate in Macao is close to 39% of GGR (Gross Gaming Revenue)

Macau imposes no tax on gambling winnings.


Advantages Enjoyed by Casinos in Macao

Macao Government: Exempts many other taxes such as corporate

income tax, equipment and facilities import tax, etc.

Leased land at very low rate

Free dealers training

Central Government of China No casino in mainland China/Hong Kong Individual Travel Scheme Country with largest population in the

world.Source: HUANG, Guihai (Samuel), Ph.D., Professor of the Macao Polytechnic Institute

In 2014, the Chinese government announced an anti-corruption campaign in Macau.

Macau junket operators are being targeted by Chinese officials who are trying to slow the rampant “gambling on credit” schemes offered by casinos and VIP touring companies

Chinese officiales ar worried over concerns that high-roller China mainland residents are funneling money through Macau and evading tax paying.

Jinping’s President assault on Macau has led to the city’s yearly gross gaming revenue falling from $45 billion in 2013 to $28 billion in 2015.

As China slowly forces the Asian gamblers out of Macau, other destinations, like Las Vegas is ready to welcome travelers with open arms.

Since 2014 China government tightens control over Macau VIP gamblers

Macau Revenue by Game

Source: Source: ULVN / Center for gaming research

VIP Baccarat

Baccarat

Blackjack

Roulette

Cussec

Stud Poker

Slots

Other

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

15,977

9,402

294

116

793

142

1,469

662

Macau Casino Revenue by Game 2015in Millions USD Dollars

VIP Baccarat

Baccarat

Blackjack

Roulette

Cussec

Stud Poker

Slots

Other

0% 10% 20% 30% 40% 50% 60%

55%

33%

1%

0%

3%

0%

5%

2%

Macau Casino Revenue by Game 2015 in %

The Macau government’s take from direct taxes on gaming dropped 34.5% percent in full year 2015, compared to 2014.

Direct taxes from gaming represented 77% percent of the Macau government’s total revenue in 2015.

Macau total Tax collection drop in 2015 is rounding -27%

For 2016 estimating November and December it is expected -6% than 2015 (own calculation)

Source: www.ggrasia.com

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Macau Gross Gaming Revenue 2014/2015(In MM USD)

2015 2014

2014

2015

USD 28.855

USD 43.940 -34,5 % Gaming Rev. Drop

Macau Revenue and taxes 2014/2015

Annual Tax collection drop -27%

Aggregate third quarter results from Macau’s big six operators have shown that VIP casino gross gaming revenue (GRR) accounted for only 44 percent—the lowest mix ever compared to revenue generated by mass segment

Source: calvinayre.com

Macau VIP Gaming revenue

The Macau government has come under pressure for tax cuts

This is very likely caused by a substantial hike in casino operating costs due to increased competition

Given the regressivity of gaming tax with respect to net profit, it is no surprise that casinos with lower profitability are more prone to seek tax cuts.

Pushing for tax variability may create policy instability, business uncertainty, and unpredictable prosperity in the long term.

The source of Macao gaming profit hinges on three distinct factors:

Rising demand from China Monopoly location for casinos Market structure of oligopoly.

These factors provide economic justifications for the current tax regime of Macao with a strong ability to pass tax burdens on to massive visitors.

The government relies on casino tax revenue to deal with gambling related problems and promote local diversified development.

Remarks about Macau Taxation

ConsecuencesSource of Gaming profit

In view of the above, the fact is that taxation of casino gaming revenues in Macau is higher than taxation of other businesses, including other gaming regions in Asia.

This may constitute a challenge to the local Government in the coming years: lowering taxation to maintain the casino industry as being competitive and attractive to new investments and current operators.

if necessary, requires that the Macau Government takes decisive steps to ensure the long sought diversification of the local economy, rendering the Macau budget less dependent from the income generated through the Special Gaming Tax.

Some conclusive Marks about Macau Taxation

Thank you

By Federico Lannes International gaming [email protected]

brazilian gaming congress 3e - presentation - v5 - lannes

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