Malaysia may raise gaming tax, say research firms

MALAYSIA may raise gaming tax for the first time since 1999 to boost revenue, said several research firms.

The tax system was changed eight years ago, when a graduated tax of between 22 per cent and 25 per cent, was turned into a flat 25 per cent tax on casino revenue.

"We believe there is a chance that the tax could be increased at the (2009) budget, handed down late next month. This is especially the case given the deteriorating outlook for the local economy," Loong Chee Wei, an analysts at CLSA wrote in a report yesterday.

Over the past one month, two of the country's cash generators, namely the palm oil sector and independent power producers were slapped with windfall taxes, that could generate an extra RM2 billion a year for the government.

Concerns over a possible steep tax increase have pushed shares of Resorts World Bhd, and those of parent shareholder Genting Bhd to their lowest since 2001, based on price to book value valuations.

In that year, investors dumped gaming stocks over concerns of lower tourist arrivals due to the severe acute respiratory syndrome (SARS) virus.

"Valuations are below the SARS doomsday scenario," CIMB's research unit said in a report last month, arguing that the selldown reflects political worries, currency weakness and a global gaming de-rating.

Analysts note that Resorts for example, if its net cash of RM1.06 billion is excluded, is actually trading at a price to earnings multiple last seen in 1999.

Based on the current gaming tax regime, Resorts paid some RM1.02 billion in gaming tax last year, and is scheduled to pay some RM1.07 billion this year, but the payment could rise further if the tax regime is changed.

"In the run-up to the budget, there are concerns of a possible duty hike ..., a 30 per cent gaming tax rate is unreasonable, in our view, given that Singapore's upcoming integrated resorts will only be paying 15 per cent tax on grind gaming revenues," wrote Loke Foong Wai, a research analyst at Credit Suisse, in a report last week.