Japan Delays Casino Withholding Tax Plan

The greatest opportunity to hit the gaming industry since Macau more than 15 years ago, the bidding war for Japan’s three IR casinos is underway.

Japan Minister of Land, Infrastructure, Transport, and Tourism Kazuyoshi Akaba revealed that the results of the government-commissioned survey gauging interest among area officials came out better than expected.

The results are from a survey of local officials conducted between September 9-19. Kazuyoshi’s agency will now begin the process of reaching out to those regions that expressed interest to further discuss the IR bidding and licensing process.

The Jiji Press, in its own poll, found that Kawasaki city, Hamamatsu city, and Shizuoka Prefecture are additionally mulling formal enthusiasm in an IR, which would bring the number of candidates to 11.

Three’s Not a Crowd

When it comes to bidding, eight is better than three. And the results showing that a minimum of eight areas are interested is much-welcomed news to federal officials.

When Japan’s National Diet first passed legislation to authorize commercial casinos, only three prefectures – Osaka, Wakayama, and Nagasaki – had expressed public interest. The opposition was a result of the casino resorts remaining unpopular among the general public. But Japan Prime Minister Shinzo Abe is nonetheless pressing forward with the foreigner-only venues in order to expand tourism.

Of course, there is no shortage of casino operators that want in on the market that is expected to become either the second or third-largest gaming market in the world behind Macau and potentially Nevada. The front-runners are Las Vegas Sands and MGM Resorts, with other notables vying for a concession including Melco Resorts, Galaxy Entertainment, Wynn Resorts, Genting, and Hard Rock.

More candidate cities should presumably pay off for Japan, as consortiums partnered with the casino operators and host locales will up the ante to win over favor with the national government. Casinos and local companies will partner on an IR scheme, then need to be selected by a local host city, and then finally issue one of the three concessions by the national government.

Delay On The Withholding Tax

A recent proposal by Japanese politicians to impose a withholding tax on winnings of foreign gamblers at the country’s yet-to-be-constructed integrated resorts is already being delayed before the idea gained much momentum.

Previously, policymakers believed it would be beneficial to gaming companies, federal revenue agencies, and the prefectures in which the integrated resorts will be located to layout tax policy prior to the opening of the venues. However, the idea encountered resistance from Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP), a conservative political group that’s Japan’s ruling alliance.

“The burden on the business community will be considerable, and the tax proposal could reduce investment in Japan’s casinos,” said an unidentified LDP member.

Previously, government officials said that not deciding on a tax structure in advance of the opening of gaming properties in Japan could impact operators’ expenditure plans. But those statements weren’t viewed as endorsements of the withholding levy proposal.

Taxes All Over

The US and South Korea are among the countries that impose withholding taxes on gambling winnings of non-resident visitors. In the US, the IRS levies a 30 % tax rate on international gamblers’ winnings, and those players can’t take a deduction on losses, a privilege enjoyed by US citizens and Canadian tourists.

The threshold for IRS reporting at US casinos is winnings of $600, or 300 times the original bet, whichever is greater. The IRS does not require withholding taxes on proceeds won at table games, such as blackjack or roulette.

Japanese policymakers hadn’t gotten into the finer details of the withholding plan. But it was hoped it would be part of broader tax reform plans to be included in the 2020 fiscal year budget set to be debated next month.

The process for selecting which cities will become homes to gaming properties is expected to start in early 2021 and potentially drift into the middle of that year. There is speculation that the selected metropolitan areas will choose operators the following year.

The Environment

News of the withholding tax delay arrives amid a recently trying stretch for Japan’s integrated resort ambitions. Recently, the Hokkaido prefecture abandoned plans to participate in the gaming property competition, citing environmental concerns.

Additionally, some operators, including Las Vegas Sands, have expressed concerns about the hefty price tags associated with building gaming properties in the Land of the Rising Sun.

Analysts believe it will cost a minimum of $10 billion to build high-end integrated resorts in Japan, and that the price tag for a single venue could possibly reach $15 billion. Sands executives previously mentioned a range of $10 billion to $12 billion for a single property, while Melco Resorts chairman and CEO Lawrence Ho recently noted it’ll cost a minimum of $10 billion to put a casino-resort in Yokohama.

Either way, one Japanese gaming property is likely to exceed the cost of several Las Vegas Strip venues combined, and be the world’s most expensive integrated resort.