Final piece of the Taiwan casino gaming puzzle

Taiwan’s draft act to legalize casino gambling on outlying islands was submitted by the Executive Yuan (EY) of the country’s government to the Legislative Yuan (LY) two years ago, and stands a good chance of being passed in this legislative session or the next.

The Tourism Casino Administration Act has had a first hearing, a public hearing and has seen comments/proposed revisions from Taiwan’s main opposition party, the Democratic Progressive Party, as well as Legislator Chen from Matsu, the only offshore island that has approved the development of casinos.

After commentary by the DPP, the Act was referred to cross-party consultations to resolve the articles of the Act on which the EY and the DPP disagreed. The time period for cross-party consultations has expired, and the Act remains in the Legislative Yuan and on the EY’s priority legislation list.

Moreover, there is no major political opposition to the creation of a casino gaming industry on Taiwan’s offshore islands. This bodes well for the enactment of the Act by the LY in the near term and the creation of a viable casino gaming industry in Taiwan in the medium-term.  

However, as noted above, the draft Act is still under political negotiation, meaning it is likely to change before it is passed by the LY.

While there are a number of differences of opinion with respect to the Act's provisions, the most important points of political disagreement center on:

1)  Number of casino licenses

The draft Act  provides that the number of casino licenses to be issued for each offshore island will be determined by the Regulator and approved by the EY, but the DPP wants a limit of two per island;

2)  Term of casino licenses
The Act provides for 30-year license terms, whereas the DPP wants 15-year terms. There is agreement on all sides (other than industry), however, that the government can reserve the right to revoke a casino license on a no-fault basis. There is also political agreement that a casino license cannot be pledged or mortgaged, though industry has commented on the effect that this prohibition may have on the tourism gaming business’ ability to finance the project;

3)  Taxation

In addition to the normal corporate income tax rate of 17 percent, the draft Act proposes GGR-based taxes of a national-level, special permit fee of between 7 percent and 9 percent, a local-level special gaming tax of up to 7 percent, a 0.5 percent contribution to social welfare funding, and a 0.5 percent contribution to a gambling addiction prevention foundation to be formed by the Regulator. The DPP has proposed taxes which potentially total up to 62 percent of GGR. Industry has, of course, objected to the DPP’s tax proposal, as has the EY;

4)  The Annex of the Act also provides that gaming winnings will be exempt from personal income tax for a period of 20 years after the first gaming license is issued. The DPP objects to the 20-year exemption.

The Draft Act also provides that the regulator for tourism casinos under the Act will be the Ministry of Transportation and Communications and provides for delegation of certain regulatory issues to an unnamed “designated responsible agency."  Both the DPP and industry have suggested that the DRA should be designated in the Act. The most likely DRA is the Tourism Bureau, though industry has commented that a new agency should be created.

Overall, the Act provides for a robust licensing and problem gambling regime consistent with Singapore. The draft submitted to the LY in 2013 is likely to be found acceptable by foreign casino operators and their regulators, provided that the revisions proposed by the DPP with respect to paid-in capital, licensing term and taxation are not ultimately approved by the LY.

Under separate legislation, any offshore islands who want to develop casino-based integrated resorts will need to hold a referendum. In past votes on the issue, the island of Penghu defeated the proposal while the voters on Matsu, the smallest of the three islands that would be likely to host casinos, passed such a referendum. Once the Act is passed by the LY, it is likely that Penghu and Kinmen will also consider holding referendums on casino gaming.

* William (Bill) Bryson is a Senior Advisor at Global Market Advisors and a frequent speaker on gaming topics in Asia. Bill can be reached at [email protected].