Japan to Levy a Tax on Foreigners Winnings
The new Japanese integrated resort casinos will be compliant with a law to withhold tax on foreigners winnings if the Diet approves the motion. The Japanese government tabled these proposals to the nation’s parliament, the Diet, last week. The measures are an attempt to quell the outpouring of capital that many of the legalized gambling Asian territories have suffered from in the past. It will tighten up the financial integrity of the system, keep the casino accounts in balance with taxation commitments, and allow the government to efficiently forecast future earnings from the ongoing project. Building a casino industry from the ground up isn’t cheap, and Japan wants to raise a significant portion from the winnings of foreign high-rollers.
A withholding tax is different from many typical tax protocols, as it deducts tax from the income before it is received by the recipient. Also known as a retention tax, it directly takes the tax at source, and is usually applied to earnings on interest or dividends being made to foreign participants. These payments are seen as a convenient way for the tax authority to receive what they are owed directly from the source, without the need or hassle to chase down those that still owe a debt to the authorities.
Casino withholds taxes are nothing new in the Asian territories. In an effort to stem the flow of funds leaving casino cities, in Macau and Singapore – retention taxes are levied against foreigner winnings. The integrated resort cashiers will follow this familiar model. Protecting the financial interests of the Japanese government will be of paramount concern in the early days of this project. If it is to continue successfully, then the operation will need to demonstrate financial sustainability and achieve tax retention objectives.
Tax Withhold System Similar to Horse Racing
The current system in Japan is a harsh environment for the big corporate casinos, and they struggle to find the legislative traction to advance their industry. The yet-to-be-built integrated resorts are a complete shift in political direction from a typically anti-gambling leadership. But times are turning, and it has been a long time coming that Japan’s biggest cities, which themselves attract millions of visitors annually, can unveil an effective solution for gambling besides a fledgling horse racing industry.
Now that the integrated resorts have become a confirmed addition to the Japanese economy, many are using the horse racing organizational structure as a blueprint for the implementation. This is true also for the tax system that will be imposed. Horse racing winnings are already subject to a retention tax, applied at the source of winnings by the company issuing the money to the winning customers. This system has worked very effectively in the past years and the feeling in Japan is the integrated resorts that will work in exactly the same way.
There are many different ways to enjoy gambling across Asia, and it is quickly becoming the continent in the world that has the highest levels of gambling adoption. Japan has long recognized the need to catch up to its rivals in the region, but has faced internal resistance for a long time.
But now the inevitability of the situation has dawned on lawmakers, they have decided by a majority to back legislative tax laws that resemble the horse racing infrastructure currently in place. This decision was vital, as the confusion and lack of decisiveness could have had catastrophic consequences on the investment attractiveness of the markets. The investment decisions of operators, as one government official stated, are absolutely vital to the economic viability of the new venture for Japan.
“If we do not decide on a certain framework in advance, it will affect the investment decisions of operators.”
Attracting international casino operators to the shores of Japan doesn’t seem like a difficult task on paper. The region is perfectly poised to flourish under a new set of liberalized taxation schemes. Yet there have been a number of friction points that could potentially spook investors in the region. With 3 integrated resorts already confirmed and a further 15 receiving seed funding, the scale of the project is potentially huge. Achieving harmony between the operators, the government and customers from far and wide will be a difficult thing to achieve, but one that is absolutely essential if Japan is to establish itself as the gambling capital of Asia.
Pressure Is Mounting on Japan’s Integrated Resorts
Besides the controversy of the withhold tax on foreigners winnings, there have been several other issues that the organizing committees have been trying to mitigate in recent weeks. One of the most pertinent issues that they are struggling to escape from is gambling addiction calls. Many local townships that will become neighbors of the casino multiplex resorts are rightly worried about the potential negative impact on their communities. Having a multitude of gambling opportunities thrust onto their doorstep has not gone down well with everybody. Organizers say that proper gambling protection measures will be in place to ensure that customers are limited to the amount they can gamble, receive support if they are feeling the pressures of addiction and ensure that nobody underage can participate.
Other commentators on the new project to build giant hotel/casino resorts in Japan have highlighted the potential fallout on the environment. This was felt in Hokkaido, which last week pulled out of a bid to be one of the cities that will establish its own integrated resort – after local groups launched a series of intense protest campaigns to block the action. Despite all these concerns, many cities across Japan seem eager to become the home of integrated resort gambling. Osaka, Wakayama, and Nagasaki have all posted bids – if they are successful, then it will be through a tax retention scheme on foreigners casino winnings that the profits of this venture are earned.