New Year, new start for Taiwan’s casino industry?

Taiwan’s Legislative Yuan failed to pass the Tourism Casino Administration Act in its most recent session, but the bill is not dead yet.

Despite considerable uncertainty stemming from upcoming presidential and legislative elections, there may be reason for optimism that even a change in government won’t necessarily derail the process.

Under the Offshore Islands Development Act, Taiwan’s offshore islands can create tourist areas that include casino zones if the island’s residents approve by a simple majority vote in a county-wide referendum.
Of the three islands – Penghu, Matsu and Kinmen – that are considered viable candidates for hosting casino zones, only two – Penghu and Matsu – have held referenda. In 2009, a referendum in Penghu failed, due mainly to pressure from anti-gaming groups, an anti-gaming “get out the vote” campaign by the main opposition party – the Democratic Progressive Party - and the absence of draft casino gaming legislation which would have addressed the concerns raised by the anti-gaming groups.
In addition, the Penghu County Government – which had championed and supported the idea of a referendum – insisted on remaining neutral
In 2012, however, a similar referendum passed in Matsu, the smallest and most mountainous of the eligible offshore islands, in large part because conditions were markedly different. First, the then-Magistrate (Governor) of Matsu and his entire administration were very active supporters of casino resort zones, mainly because of the infrastructure development, tourism and employment opportunities that casino investments would bring to the island.  
Second, at the time of the referendum, the Taiwan government had already issued a draft of the Act, the provisions of which addressed many of the issues that had been raised by the anti-gaming forces in the Penghu referendum. Third, and perhaps the most important element, a foreign gaming development company, Global Gaming Asset Management, had expressed a very strong interest in developing a multi-billion dollar integrated resort in Matsu, thus precluding any argument that nobody would be interested in developing a casino-based integrated resort there.
The Act was submitted to the LY on April 30, 2013, and there it has remained, mired in public hearings and cross-party negotiations – but not dead yet.
Unfortunately, with the close-out of the LY for the year, elections being held on January 15, and the very real possibility that both the Presidency and the control of the LY will shift to the DPP, the only remaining opportunity for the bill to be passed by the ruling Nationalist Party (the KMT), which has traditionally supported the casino gaming initiative, will be the “lame duck” session between the elections in January and the swearing-in of the new government and LY members in May.   
Changing political conditions suggest, however, that if the Act does not pass during the lame duck session, that it could still pass, even in a post-election DPP-dominated LY and with a DPP executive branch.  The most significant political change appears to be happening in Penghu, where the County government has recently announced its intention to hold a casino gaming referendum in 2016.  
It is worth noting that the political environment in which the 2016 referendum would be held is quite different from the political environment in 2009.  In particular:
1)    The County Magistrate of Penghu County is a member of the DPP;
2)    The County government overtly supports the referendum, and seeks an approval from the residents of the county;
3)    The referendum enjoys the support of the county chamber of commerce and other local business organizations; and
4)    The draft Act, which has been submitted to the LY, addresses many of the concerns expressed by the anti-gaming activists in 2009.
Given these factors, it is quite possible, though by no means certain, that Penghu’s second casino referendum will pass.  The date of the referendum has not yet been set, though there are some indications that the target date would be sometime during the lame duck period.
In the event that the Penghu referendum passes, a new DPP government would be faced with a potential conflict between the party’s prior opposition to casinos in Penghu, and the desire of the residents of a DPP-governed island to establish casino zones.  While the LY was not willing to pass the Act for the sake of Matsu alone, the LY might be more inclined to pass the Act if a majority of the eligible offshore islands have held successful referenda.
It is not enough, however, merely to pass the Act; the Act must pass in a form which would encourage reputable foreign casino operators to bid on licenses.  Unfortunately, this is not a certainty, as the DPP has previously proposed amendments that would likely make the Act, and the regulatory regime established under the Act, unpalatable to many potential foreign investors.
These include amendments which would:  a) shorten the license term from 30 years to 15 years; b) impose a minimum NT$60 billion (approximately US$2 billion) capital requirement on licensees; and c) impose taxation in the amount of up to 62 percent of gross gaming revenue, on top of a 17 percent tax on net income. If these proposed amendments are incorporated into the draft Act, it is unlikely that Taiwan’s casino zones will be attractive to many potential foreign investors.
So, while the prospect of casino gaming being established in Taiwan is not dead, it is certainly under threat given the changing political climate that is likely to be wrought by the upcoming election.  That same political climate, however, may actually make it possible to pass the Act and establish a casino gaming industry on Taiwan’s offshore islands.  The New Year will, indeed, be an interesting year for Taiwan.

 * Bill Bryson is a principal with Global Market Advisors and has more than 25 years of experience practising law in New York and Taiwan.