Published in: Latest Intelligence
Sri Lanka’s new government has put a stop to three new gaming projects, including one by Australia’s Crown Resorts, slamming the door on what had been seen as an exciting new Asian casino market.
A mini-budget presented to the parliament by Finance Minister Ravi Karunanayake on January 29 imposed a one-off flat tax of one billion rupees, or around $7.6 million, on all casinos operating in Sri Lanka and also cancelled generous ten-year tax concessions that were granted to the three projects under the previous administration.
The concession had allowed a five percent tax rate on the projects, developed in an area of the capital earmarked by the previous government for high-end recreational projects.
"I think, there is unlikely to be any new interest in investing in the gambling sector any time soon,” one stock market analyst told AGB. “The government has shown without any doubt that it is not inclined to give any special treatment for the sector."
The previous Mahinda Rajapaksa government had entered into three new development projects that included casinos. All three projects were to be located in the capital Colombo.
The three were Crown’s $400 million project, the $300 million Queensbury resort developed by Sri Lanka's Vallibel One group and another $ 850 million project by the local conglomerate John Keells Holdings. All three projects received cabinet approval in April 2014, but also faced stiff resistance from religious and political groups.
Rajapaksa lost the presidency at the January 8th poll to challenger Maithripala Sirisena whose manifesto said that the casino projects would be scrapped.
Soon after the mini-budget a representative of Crown told Australian media that “the company respected the decision and on that basis the project would not be going ahead.”
If there was any hope that there was at least some room for Crown to renegotiate the generous tax breaks, they were firmly dashed on January 31st by Prime Minister Ranil Wickremasinghe himself.
“Packer says he will not come. Who asked you to come?” Wickremasinghe was quoted in a statement released by his office, adding “please don’t come - not in this lifetime”.
“We need only good investors. We don’t want an economy relying on casinos,” he said in a public speech.
Only one of the three new projects, the $850 million John Keells Project has begun construction and was expected to be operational by 2018. The casino operations form only part of the large entertainment and office complex being developed and the company said that it was going ahead despite the new government ruling.
“Whilst the proposed amendment will constrain the ability to command premium rentals on this (gaming) component of the project, the multi-faceted nature of this development gives your board the confidence that the project will still be viable given its diverse portfolio of revenue streams and iconic design,” the company said in a special announcement made to the Colombo Stock Market.
There was no news whether the third project, the Queensberry, funded by Sri Lankan tycoon Dhammika Perera would go ahead. Perera with three licenses and Ravi Wijeratne with two, control the five gaming licenses issued thus far in Sri Lanka. The new projects were to operate with two of these five licenses.
Unconfirmed reports said that Perera was considering closing down two of his three small casinos due to the new tax. The government has given casinos until April to pay the levy, which would total three billion rupees, or close to $23 million for Perera’s three operations.
Sri Lanka’s loss could be Nepal’s gain. Silver Heritage Group, which has begun casino operations at the Shangri La Hotel in Kathmandu, pointed to the potential of a gaming jurisdiction neighbouring India.
“We are confident the Kathmandu development represents a huge opportunity given its proximity to India and China’s massive and growing middle class and Nepal’s cultural affinity with its Southern neighbour,” SHL CEO Mike Bolsover said in recent a statement.
Since the end of a long civil conflict in May 2009, Sri Lanka has been eyed by global gaming operators as a possible destination able to attract big spenders from India’s ballooning middle class.
Many pointed to the potential similarities between Sri Lanka and Macau in its proximity to a large and increasingly wealthy population base in its larger neighbour, where gambling is banned.
Indians make up about 15 percent of all tourist arrivals to Sri Lanka totaling 1.5 million, a 19 percent increase from 2013. Tourism officials say that with new hotels coming up arrivals could breach the 2 million mark in the next 24 months.
Gaming investors were also attracted to Sri Lanka because of rising Chinese travelers, with numbers surging by 90 percent between 2012 and 2013 to 54,000.