PHILIPPINES

Tax reforms may have sting in the tail

Philippine President Rodrigo Duterte late last year signed into law the first steps in a long-awaited tax reform program to raise funds to improve infrastructure, which analysts say will dampen consumer spending, but are unlikely to hurt the booming gambling industry.

However, a second round of measures may contain more of a sting and operators are watching the bill closely.

Any policies that could affect spending power in the Philippines are significant, as the country has a strong mass market, dominated by local visitors.

Known as the Tax Reform for Acceleration and Inclusion (TRAIN) law, the program reinvents the country’s 20-year tax regime. The government claims it will be a simpler and fairer system, designed to shift the tax burden from the lower 99 percent of the community to the wealthiest 1 percent.

This is being rolled out in a series of packages across the year. The first package sees a reduction in personal income tax rates benefiting taxpayers earning above minimum wage and an increase in excise levies on items such as petroleum and automobiles, tobacco and sugar-sweetened beverages among others. These will be staggered and adjusted gradually in a bid to generate P130 billion ($2.53 billion) in additional revenues.

With the new income tax rates, the winners are Filipinos making an annual taxable income of P250,000 (around $5000) and below as they will no longer need to pay income tax from 2018 onwards. Meanwhile, those earning above P8 million ($156,000) annually will be slapped with 35 percent personal income tax, higher than the current 30 percent.

Small businesses are likewise expected to benefit from the TRAIN law, which offers an optional flat 8 percent tax based on gross sales or receipts in lieu of business and income taxes.

But not everyone is happy. According to Rosario Bella Guzman, research head and executive editor of IBON a non-profit development organization, the richest 10 percent will benefit from TRAIN, while there is a computed negative outcome for the lower 60 percent of income earners. Most of the country’s 22.7 million families do not pay income tax because they are engaged in informal work with low and erratic incomes so do not receive the benefit of lower income tax, but are hit with the burden of excise tax.

With the significant rise in prices of commodities, consumers can also expect a rise in the inflation rate, but according to the Department of Finance this will only be a short term hiccup. Inflation is estimated to go up by 1 percent next year and 0.5 percent in 2019.

But while this could dampen overall consumer spending, it won’t affect spending habits among the middle class for luxury items such as shopping, or leisure activities such as gambling.

In fact a higher disposable income means higher demand for gaming and entertainment, benefiting the gaming industry says Richard Laneda of COL Financial.

“While some goods will be more expensive, I think it’s still better as consumers will have the choice on where to spend the higher takehome pay. They can choose not to purchase items whose excise tax has been increased thus resulting in a net positive impact on their disposable income. People who have suddenly a higher take-home will not spend more on food or necessities but will likely spend on discretionary items or even leisure activities like gaming and entertainment,” says Laneda.

“In that regard, we do not think there will be a slowdown in the mass market segment of casinos.”

Operators are also not concerned. Steve Wolstenholme, managing director of Okada Manila says “The TRAIN law will effectively reduce the income tax payments of most salaryearners. That will free up some disposable income, which can be spent for leisure activities including gaming. The new law can therefore have a positive impact on our mass gaming market.”

But what will affect the casino industry directly is the second tax package, which is currently under review. The proposal will be submitted to congress to be discussed before the end of February and is expected to come out mid to late 2018.

This package will cover corporate taxation and the modernization of fiscal incentives and look at taxes on tobacco, alcohol, mining, coal and casinos.

In a statement, Finance Undersecretary Karl Kendrick Chua said package two will include the removal of the value-added tax exemptions for coal and casino operations. The Department of Finance wants to lower the corporate-income tax to 25 percent, from the current 30 percent, and rationalize the fiscal incentives for businesses.

While the exact details of the second package are not yet known, there is concern.

“If the Department Of Finance means to remove the tax exemption of casinos in TRAIN Phase Two, it is a proposal that needs serious consideration. It will have a significant impact not only on the existing operations but more importantly on the competitiveness of the Philippines as an investment destination for gaming and related leisure,” said Atty Arnold Salvosa, assistant vice president for corporate and legal services of the Philippine Amusement and Gaming. Corporation (PAGCOR).

“If the existing tax exemption of gaming income from Value Added Tax (12 percent) and Corporate Income Tax (30 percent of taxable income) will be removed, the Philippines will likely become the most expensive jurisdiction to do gaming business,” Atty Salvosa added.

Tiger Resort Leisure and Entertainment

Okada Manila, owned by Japan’s Universal Entertainment, is the newcomer to Entertainment City, holding a soft opening for the resort in late 2016. At 44 hectares, the property is by far the biggest in the complex and the rollout of hotels and other facilities is continuing. At its completion of Phase One, Okada will have 994 hotel rooms and operate 500 tables and about 3,000 slots. Its centrepiece is the world’s largest coloured fountain, as well as a giant inner city beach complex, known as “Cove Manila”.

The casino floor will have about 500 table games and 3,000 electronic gaming machines, a 90,000 square-feet nightclub and beach club entertainment complex. It will also have an 8,409 square-meter retail promenade, a world-class spa and 40 restaurants ranging from casual, buffet, and international dining.

“With these kinds of amenities and this type of spend, it’s not just going to put Okada Manila on the map, but also Entertainment City and Manila in general as a global entertainment destination as well as a business destination,” Managing Director Steve Wolstenholme says.

Bloomberry Resorts

Bloomberry Resorts Solaire is a 16-hectare gaming and integrated resort complex along Asean Avenue in Parañaque City. The Bay Tower of Solaire consists of a casino with an aggregate gaming floor area of approximately 18,500 square meters (including approximately 6,000 square meters of exclusive VIP gaming areas), with approximately 1,400 slot machines, 295 gaming tables and 88 electronic table games. Bay Tower has 488 hotel rooms and 15 specialty restaurants. Contiguous to the existing Solaire Resort and Casino, the Sky tower consists of a 312 all-suite hotel, additional ten VIP gaming salons with 66 gaming tables and 223 slot machines. It also includes a certified 1,760-seat lyric theatre.

The company recently put in a bid to buy the land the casino is built on and an adjacent plot through its Sureste Properties unit. The two plots of land total 160,359 sqm, with minimum floor price for the land set at P37.2 billion (US$738 million). Bloomberry is also planning a second property in Quezon City, which is due to break ground towards the end of this year.

“The locals market will continue growing in line with the growth presently characterizing the Philippines economy, but international visitation will continue to outpace domestic growth as the Philippines and Solaire become better known and “mainstream” to Integrated Resort guests and players globally,” President and Chief Operating Officer Thomas Arasi says.

City of Dreams

The $1.3 billion City of Dreams Manila is owned by Belle Corp and Melco Crown Entertainment’s local unit. City of Dreams Manila has six hotel towers with approximately 950 rooms in aggregate, including VIP and five-star luxury rooms and high-end boutique hotel rooms, a wide selection of restaurants and food & beverage outlets, a 4,612.44 square meters family entertainment center in collaboration with Dreamworks Animation, a live performance stage, two international nightclubs and a multi-level car park. It includes an approximately 260 room Crown Towers hotel, Hyatt City of Dreams Manila, a 365 room hotel managed by Hyatt International Corporation and Asia’s first Nobu Hotel with 321 rooms.

The group recently reshuffled its management team in Asia, with City of Dreams Manila President Geoff Andres moving to manage sister property Studio City in Macau. Kevin Benning, who was formerly VP of gaming operations in Manila, has been promoted to senior VP and chief operating officer of the Philippine property.

Resorts World Manila

Travellers International Hotel Group, a joint venture between Genting Hong Kong and Alliance Global, is the owner and operator of Resorts World Manila. The hotel room count for the group’s three hotels (Maxims Hotel, Remington Hotel, and Marriott Hotel Manila) remains at 1,226. The property is currently in the third phase of its expansion, which will consist of a further three hotels, more gaming and other amenities and is scheduled to be completed by 2018. Further down the road, it will open the fourth and final IR planned for Entertainment City, which is scheduled to open in 2020. As the first IR in Manila, the company has built up a loyal base of customers, especially in the local mass market.

“The Philippine market is getting used to luxury goods, but sometimes things are too big and too quick. For some of the domestic market, they feel intimidated. You have to tap into that market and understand what they want,” says Chief Operating Officer Stephen Reilly.

Freeze placed on new casinos

The Philippines’ gaming regulator said there will be no more new licenses granted in the Philippines after January 11 this year, due to President Rodrigo Duterte’s concern about the proliferation of casinos across the country.

“The President told me last January 11 to freeze the entry of new casinos because there are already many of them, and there are more wanting to apply,” Philippine Amusement and Gaming Corp Chair Andrea Domingo said. There are three new casino licensees in Cebu, including Emerald casino from Dennis Uy, Millenium casino by the Hong Kongbased Asian Gaming Group and the Universal casino by the Gokongwei Group.

There are another eight operations in Clark, Pampanga, and another Pagcor approved licensee on Boracay Island.

Pagcor eyes doubling in POGO revenue

Philippine Amusement and Gaming Corporation (PAGCOR) chair Andrea Domingo said she expects income earned from online casinos under the POGO scheme to reach P6 billion in 2018 ($115 million), double the P3.1 billion earned last year.

“Not all the licensees were fully operational last year,” said Domingo, referring to the 45 firms granted licenses last year. “But this year, everyone will be operational, so we expect revenue to increase.”

Under the POGO scheme, each licensee is required to pay $10,000 in licensing fees per month for a minimum of 15 gaming tables, or a total of $150,000 per month per POGO licensee.