Casino builders eye ways to avoid tax hike effects

MANILA, Philippines - Integrated casino developers at the 120-hectare Entertainment City of the Philippine Amusement and Gaming Corp. (Pagcor) along Manila Bay are looking at ways to avoid the adverse effects of the 30 percent income tax that the Bureau of Internal Revenue (BIR) has imposed on their gross gaming revenue.

The BIR issued a memorandum circular last week that Pagcor and casino license holders are subject to the 30 percent income tax instead of the five percent franchise tax.

The five percent franchise tax is embedded in the gaming fee that licensees pay to Pagcor, which promised not to pass on any tax to them.

Investors are worried that earnings of integrated casino developers will decline, given the new tax ruling.

Investors have dumped the stocks of casino license holders, who are set to meet with regulators.

Share prices of gaming firms Belle Corp. (-7.56 percent), Melco Crown Philippines Resorts Corp. (-12.34 percent), Alliance Global Group Inc. (AGI) (-5.2 percent) and Bloomberry Resorts Corp. (-5.5 percent) were battered in trading in the past two days.

AGI said it is studying the new BIR issuance in consultation with Pagcor.

“We are confident that fair and equitable resolution will be made in keeping with the true spirit and intent of our provisional license,” AGI said.

Pagcor will safeguard the economic terms of the agreement, AGI added.

Bloomberry, owner of the $1.2-billion Solaire Resort and Casino, expects a reduction in gaming fees to remove the five percent franchise tax component.

Bloomberry said it is still determining how the change will affect its operations.

“The licensees of Pagcor are meeting to discuss and prepare a collective response to this matter,” Bloomberry said.

AGI, which partnered with Malaysia’s Genting Bhd. to start operations of the $1.1-billion Resorts World Bayshore in 2016, said: “We are optimistic that the government and the industry will come out with a common understanding supportive of the growth and success of the business.”

Melco Crown said it “continues to evaluate different options available to it, including but not limited to, legal remedies and negotiations with relevant regulatory bodies.”

Belle Corp. of the SM Group and the local unit of Macau-based Melco Crown Entertainment Ltd. are behind the $1.3-billion Belle Grande Manila.

Belle vice-chairman Willy Ocier said Belle and Melco Crown still have time to plan how to compensate for the new tax rules to maintain financial viability of the casino project.

Belle and Melco Crown will start the casino complex  operations in mid-2013, next to the Solaire of port magnate Enrique Razon that opened in March.

The fourth license holder in the Entertainment City is Japanese tycoon Kazuo Okada.