An economic evaluation of Singapore's Casino Tax; using criteria such as Efficiency, Equity, Adequacy, and Feasibility

1. Vikas Sharma, PMP®
Principal Consultant, Frost & Sullivan June 2013
Vikas Sharma Page 1
Broken down
further into
underlying
indicators
wherever
appropriate
Political
Feasibility
Administrative
Feasibility
Efficiency
Equity
Adequacy
Casino Tax Evaluation Framework
Evaluating Singapore’s Casino Tax
Introduction
Singapore approved operations of 2 casinos (integrated resorts) in the year 2005, simultaneously introducing a
‘Casino Tax’ to be levied on the gross gaming revenues of the operators. This tax was in addition to two other
taxes to be levied on the casinos – GST and corporate income tax. The intent of this memo is to present an
evaluation of the Casino Tax. To this end, the memo first introduces the various criteria used for the evaluation,
and then proceeds on to the actual evaluation itself.
Choice of Criteria for Evaluation
As shown in Figure 1 below, five pertinent criteria ‘buckets’ have been identified to evaluate the Casino Tax on.
Wherever appropriate, these criteria buckets have been broken down further into constituent ‘indicators’ and the
analysis presented using them as pivots.
Figure 1

2. Vikas Sharma, PMP®
Principal Consultant, Frost & Sullivan June 2013
Vikas Sharma Page 2
1. Efficiency: Taxes almost invariably distort market behavior and lead to deadweight losses / excess burden. It is
important to evaluate how well the Casino Tax allocates resources and keeps deadweight losses acceptable.
2. Equity : It is important to judge whether the Casino Tax is ‘fair’ and equitable in its construct. Does the tax – 1)
allow taxpayers to pay according to their ability/benefit received 2) have a progressive structure (whereby the rate of
taxation increases with the taxable base) that is typically considered desirable in tax structuring
3. Adequacy : This criterion bucket helps to assess whether the Casino Tax does a ‘good job’ as a source of
revenue for the government. The underlying indicators used here are:
a) Revenue Raising Capacity: Does the tax constitute a positive revenue stream for the government, that is. are the
revenues raised by the tax enough to justify the costs incurred?
b) Elasticity: Is the tax robust enough to work well over time and continue to bring in adequate revenues, as the
value of money decreases and price levels in the economy move up in general?
4. Administrative Feasibility : This criterion bucket evaluates the resource commitments required by the
government as well as the tax payers towards the Casino Tax. The underlying indicators used are:
a) Administrative Costs: The resource commitment required from the government to collect tax from operators
b) Compliance Costs: The resource commitment required from the operators to comply with the tax
5. Political Feasibility : This criterion bucket evaluates the level of popular support that the Casino Tax would be
able to garner from the various influential stakeholder segments that are involved. These stakeholders are:
a) Punters/Players: the actual consumers of the Casino gaming services
b) Casino Operators: the suppliers of Casino services in Singapore (for e.g. Resorts World Sentosa)
c) Academics / Policy Thinktanks: these groups would likely comment on the suitability and quality of the taxation
structure adopted. It would be ideal to consider their views and aim to achieve their support

3. Vikas Sharma, PMP®
Principal Consultant, Frost & Sullivan June 2013
Vikas Sharma Page 3
Results of the Evaluation
This section discusses the evaluation of the Casino Tax against the criteria presented above. For criteria that have
been broken down into indicators, the evaluation has been done at the indicator level.
1. Efficiency: In the traditional model of casino taxation that existed in several countries (please refer to UK case
from the references section), tax was charged directly on the casino’s TOTAL revenues. This meant that all bets
placed by the players were taxed. Before discussing the efficiency of this approach, tt is important to understand
that players’ propensity to gamble in Singapore’s casinos can be said to be elastic in nature. A big reason for this is
the ready availability of substitute casino options in Macau/Genting/Star Cruises, as well as availability of
substitute gambling options like lottery tickets, online poker games, football betting etc. in Singapore. Hence,
putting a tax on the players’ bets would reduce their incentive to bet in the casinos, and lead to allocative
inefficiency. The Singapore Casino Tax counters this efficiency problem by taxing the gross gaming revenues
(GGR) of the casinos instead. This means reduced tax burden on the players, giving them better value for their
stakes, hence incentivizing them to increase their stakes. This reduces the deadweight loss associated with taxation
and is allocatively more efficient than the traditional taxation approach. Furthermore, moving away from a tax on
players’ stakes also removes the incentive to engage in illegal untaxed gambling, which further justifies the better
allocative efficiency of the gross gaming revenue taxation approach used in Singapore’s Casino Tax
2. Equity: By taxing the gross gaming revenues (not the total revenues), the Singapore Casino Tax regime allows
the casino operators to offset the winnings that they pay out against the bets that they receive. This means that the
tax burden on the operators is proportional to their ‘ability to pay’ – when they make more gross profits (GGR),
they pay more tax and when they make less gross profit (GGR), they pay less tax. Hence, the Casino Tax is
equitable as it allows the tax payers to pay according to their ability. If taxes were levied on the total revenues
instead, it would be unfair to the operators because they could potentially be paying taxes even when they are
making losses. In addition, the Singapore Casino Tax can also be argued to be ‘progressive’ in a way. The

4. Vikas Sharma, PMP®
Principal Consultant, Frost & Sullivan June 2013
Vikas Sharma Page 4
operators pay a lower tax rate of 5% if they only rely on income from their ‘premium’ players (who maintain a
minimum account and hence can be thought of as ‘regular’ players). However, if the casinos want to make more
income by attracting non-premium ‘other’ players, then they have to pay a higher tax rate of 15%. Hence, the
effective tax rate is higher as the casinos’ gross gaming revenue increases, which makes it a ‘progressive’ tax.
3. Adequacy: Evaluation of the two indicators included under this criterion is presented below:
a) Revenue Raising Capacity: As per the information given in the ‘innovategaming’ link, the total tax revenue
generated from the two integrated resorts in FY2011 is expected to be USD1.1 billion. For the sake of argument,
we assume that 90% of this revenue is attributable to the casinos, that is, expected FY11 revenue from Casino Tax
is 90% X USD 1.1 billion = USD990 million. We also know from the assignment problem, the number of problem
gamblers in Singapore (38,319) and the associated direct social cost per annum (USD 13,586 per problem
gambler). This gives us a a TOTAL social cost of: USD13,586 X 38,319 = USD521 million. Subtracting this total
social cost from the total Casino Tax revenue, we get a positive net tax revenue of USD (990-521) = 469 million.
Hence, we can see that the Casino Tax does a good job of producing a positive revenue stream for the government.
b) Robustness: It can be argued that the profile of people who play in the Singapore casinos is socio-economically
much better (tourists and locals who are willing to pay the $100 admission fee) than that of regular gamblers who
bet on football/lottery/toto etc. Hence, frequenting the Casinos can be considered a kind of ‘luxury’ good. Hence,
its demand is elastic to incomes and by association; therefore, Casino Tax can also be considered elastic with
respect to incomes. Hence, the Casino Tax should do a good job of increasing tax revenues with rising incomes.
4. Administrative Feasibility: Evaluation of the two indicators included under this criterion is presented below:
a) Administrative Costs: Government effort can be argued to be not very high. It is similar to administering
corporate income tax. Also, the tax has to be administered only twice because there are only two casino operators.
b) Compliance Costs: Compared to administrative costs, compliance costs are higher. It is the operators
responsibility to keep track of their premium/non-premium gross revenues and file their taxes correctly and on
time. Otherwise, they can incur penalties for late filing/incorrect filing/later payment or tax evasion.

5. Vikas Sharma, PMP®
Principal Consultant, Frost & Sullivan June 2013
Vikas Sharma Page 5
5. Political Feasibility: Evaluation of the three stakeholder segments included in this criterion is presented below:
a) General Public: The Casino Tax does not levy a direct tax on the players and hence, will find support from the
casino players because it incentivizes them to bet more. In addition, by charging a higher tax rate for the non-
premium players (likely to be low/middle class people), the Casino Tax discourages the casino operators from
focusing on this segment, and instead, incentivizes them to focus on the affluent premium players. This should be
popular among the public since this tax structure, in a way, shields regular local people from gambling excessively.
b) Casino Operators: The Casino tax only taxes gross gaming revenues, instead of total revenues, hence allowing
the operators to pay according to their ability, which should find support from the operators. Howeve, the higher
tax rate charged for non-premium players would not be popular among operators since it reduces potential profits.
c) Academics/Policy Thinktanks: As explained under the efficiency criterion, the Casino Tax has better allocative
efficiency the traditional tax structure for casinos. Furthermore, it discourages players from engaging in illegal
betting markets. For these reasons, the Casino Tax should find support from the academics and policy thinktanks.
Conclusion
Based on the preliminary evaluation presented above, the Singapore Casino Tax can be said to be well-designed
and should continue to be a good source of tax revenue for the Singapore government in the coming years.
Reference Sources
Given below is a non-exhaustive list of reports/weblinks that were consulted for this paper::
1. “How Casino Tax is computed”, Inland Revenue Authority of Singapore
2.”Singapore Casino Tax revenue to hit $1.1 billion” www.innovategaming.com/singapore-casino-tax-revenue-
to-hit-1.1bn
3. “The Modernisation of Gambling Taxes: Consultation on the Evaluation of the Gross Profits on Betting – One
Year On” HM Revenue & Customs, United Kingdom
4. “An economic analysis of the options for taxing betting (2000)”:a study conducted by Nottingham and
Nottingham Trent Universities