|TODAY file photo|
By Faris Mokhtar
05 April, 2019
SINGAPORE — Negotiations with the integrated resorts to commit about S$9 billion of non-gaming investments took more than two years, but the Singapore Government was able to iron out a deal based on its own terms, Trade and Industry Minister Chan Chun Sing said.
Singapore has to be in a position of strength to negotiate, and ensure that the country is “never held ransom” or “overly dependent” on one particular sector, he said at a media briefing on Friday (April 5) to talk about the negotiation process.
The move is to strengthen the country’s profile as a business hub and a part of its economic strategy, which was the approach adopted when it brought in the integrated resorts in 2006.
Pointing out that investing in or relying on one particular sector is risky given the volatile economic conditions, Mr Chan added: “One reason the Singapore economy has grown steadily is because we diversify our risks so that we have that balance.
“One of the lessons learnt in our overall economic strategy is to make sure that we are never held ransom by one particular sector or overly dependent on one particular sector.”
On Wednesday, four government ministries including the Ministry of Trade and Industry and the Ministry of Finance announced that Marina Bay Sands (MBS) and Resorts World Sentosa (RWS) — the two integrated resorts running casinos here — will put in about S$9 billion of non-gaming investments to build tourism, facilities and attractions.
In return, the Government has given them “business certainty” by ensuring that no casinos will be built here until end-2030.
Mr Chan said that the country’s growing economy and ability to draw in investments gave the Government the “latitude” and “greater leverage” to negotiate.
Recently, British technology company Dyson said that it will set up a car manufacturing plant here, and just a few days ago, American oil and gas giant ExxonMobil announced its multi-billion-dollar expansion of its manufacturing complex in Singapore.
“Imagine if our economy has not been growing, or it’s in a recession, then it would significantly weaken our bargaining position,” Mr Chan said.
This is unlike other countries, where they have no leverage to negotiate as the governments are too dependent on a particular sector.
“That is not the situation we want to get into,” he added.
Likewise, Singapore’s revenue is also “not dependent or held ransom” by the gaming revenue, with Mr Chan saying that revenue from the integrated resorts form a “small part of our overall revenue base”.
Though casinos are allowed to be expanded, there is a need to “pre-empt and contain” any social ills, especially gambling.
That is why aside from increasing the levies on Singapore residents and other existing measures, the Government and the integrated resorts are studying a technologythat lets gamblers set their budget and tell them when to stop.
A CHALLENGING NEGOTIATION
During negotiations, Mr Chan said that there are competing interests at stake, but an agreement has to be reached.
For instance, the integrated resorts wanted more gaming machines, but the Government agreed only after the assurance was given that the machines have to cater to higher-tier non-mass market players, who are mainly tourists.
“Doesn’t mean that you ask… it shall be granted,” Mr Chan told reporters.
A spokesperson from the Ministry of Trade and Industry said that the negotiation process started before the previous exclusivity period ended in 2017.
The reason why the process took so long was because the Government has to deal with two parties with different interests.
There are three things that were non-negotiable: Tax rate, social safeguards and exclusivity period.
No exceptions could be made to one company or the other, Mr Chan said.
Saying that “tenacity and creativity” were needed during the negotiation process, Mr Chan used the example of the tax rate imposed on the integrated resorts.
As part of the agreement, a tiered structure for casino taxes will be introduced after the current moratorium ends in February 2022.
With the change, the first S$2.4 billion of gross gaming revenue (GGR) from premium gaming will be taxed at 8 per cent, while GGR which exceeds S$2.4 billion will be taxed at 12 per cent.
For mass gaming, the first $3.1 billion of GGR will be taxed at 18 per cent while GGR which exceeds $3.1 billion will be taxed at 22 per cent.
Mr Chan told reporters that there was a challenge in determining how the taxes should take shape.
Imposing a flat tax hike based on a company’s growth projection could be a “deal breaker”, he said.
That is why the Government came up with a tiered tax structure. If a company says that it is growing only at 1 per cent, for instance, then it should not worry about crossing the threshold.
But if the company is projected to grow at a higher rate, and if it does, then it will cross into the higher tax bracket.
“That’s how you break the deadlock. No point quarrelling over assumptions because how do I know that you’re correct or I’m correct?”
A similar argument has to be put forth to the other company, but the tax rate must be the same, he added.
WHY NOT OPEN UP THE MARKET?
Asked why the Government has to step in to extend the exclusivity rights, Mr Chan said that the exclusivity period is determined by the Government and it also has the right to decide whether to extend it or not.
On why it is not opening up the sector to more players, Mr Chan noted that there are other parties interested to set up shop here. However, the Government did not enter into any negotiations.
It has to evaluate the offerings those parties bring, the competition dynamics as well as the social impact.
“It can be positive and leading to everybody doing better, or it can be negative because people start to cannibalise each other and target the same market,” he added.
On top of that, The Government has to look at what the existing players can offer.
“We evaluated on the economic side and the social side, and we think that the current one is what we are more prepared to go with.
“Are there third parties expressing interest? Yes. We have to decide, rather than chasing everything between that option and working with the current two.”
By expanding the casinos of MBS and RWS, the revenue will also be used by the integrated resorts to fund the non-gaming investments.
However, their takings — as well as casinos in other countries — have taken a hit over the years, partly due to a drop in the number of high-rollers. The effect of China’s crackdown on corrupted elites are still being felt as well.
When asked if the model to use casino revenue to fund non-gaming investments is sustainable, Mr Chan replied that both MBS and RWS had asked that the extension of their approved gaming areas be an option instead of a must.
From this, it could be deduced that the integrated resorts here are “quite different” from those elsewhere, in which their non-gaming components are much more sustainable, he added.