The casino conundrum; No to unlicensed and tax free casinos in Sri Lanka

by Harsha de Silva,
Ph.D, Member of Parliament

Forbes says Packer has got Cabinet approval for his Crown casino in Colombo

Forbes Asia reported on 29 January2014 that Australia’s casino king James Packer had claimed he just won approval from the Sri Lankan government to build a five-star casino resort in Colombo. Sydney Morning Herald had also reported a few days earlier on 23 January that Packer received government approval to build a resort in Sri Lanka but without explicit approval for a casino. It said that Crown was in discussions with the government on the ‘gaming side’ of the project.

What the Cabinet approved on 20 January 2014

What Minister Lakshman Yapa Abeywardana sought approval from his Cabinet colleagues and obtained was large-scale tax breaks for James Packer’s Crown project along with two other projects. I will only discuss the Crown project for the moment to keep the focus narrow. The Minister identified the project published in the extraordinary gazette on 17 December 2013 as an "integrated super luxury tourist resort facility which includes high end shopping malls and high quality residences and office spaces and service spaces with associated facilities".

How is it different from the previous Cabinet approval?

The first major difference of the project with what was published previously in the gazette of 23 September 2013 and subsequently approved by the Cabinet is the disappearance of the two words ‘gaming activities’. This is what the previous gazette said "an integrated resort with meeting and convention facilities, gaming activities, fine dining restaurants and other associated facilities". The other is the disappearance of the section on Betting and Gaming Levy that applies to ‘gaming activity’. So at face value the new approval is for a resort without a casino; unless of course this is an attempt to mislead the public.

Tax breaks given to Packer’s invisible casino?

As per the usual practice for strategic investment projects Packer has been offered a complete tax waiver for the first 10 years and partial waiver for the next 12 years along with a host of other concessions. Providing tax breaks for large investors has been accepted practice and up to now no major opposition has been brought on any such incentives. Even in this case, the issue is not on tax breaks for the ‘super luxury resort’ but for a possible casino hidden under ‘service spaces with associated facilities’.

Seriously, will Packer build a resort without a casino?

The simple answer is No. Packer is a casino mogul. All his new investments are now in casinos after he rationalized the media businesses his father built. He tells Fortune that he has four large casino investments taking shape over the next few years; in Colombo, Manila and Macau. It is in this background what the Sydney newspaper story becomes important; that he is in discussions with the government on the ‘gaming side’ of the project. If there is no ‘gaming activity’ in the resort what kind of discussion could Mr Packer have with the minister he famously bent in two in veneration on the ‘gaming side’? This whole thing is now beginning to smell bad.

Who’s got licenses to operate casinos in Sri Lanka?

No one has a license to operate a casino in Sri Lanka. No one includes James Packer and his local partner Ravi Wijeratne, who a few months ago was famously referred to as "almost family to President Mahinda Rajapaksa and his powerful brothers" by the Sydney Morning Herald. Giving an interview to the Sunday Times on 19 January 2014 Mr Wijeratne says about his venture with Mr Packer "I am going to run a hotel and a gaming club." How is he so certain that he will run a gaming club or a casino? Is he going by the government position frequently regurgitated by the minister that ‘existing licenses’ can be switched from one location to another; in this case from his Stardust Casino or the Marina to the Crown? Precisely he is. In an interview with the Daily Mirror on 15 December 2013 he declares "After opening the hotel (referring to the Crown) I would use one of my casino licenses for it," and adds "There is no restriction to use my present license to run a casino in my hotel (Crown)". Now this whole matter is getting interesting.

But, there are many casinos in Colombo

There are many casinos in Colombo. Besides Mr Wijeratne, the other big-time casino operator in the city is Dhammika Perera, who is also the secretary to the ministry of transport. The two of them run several mid-sized casinos. Mr Wijeratne’s Stardust and Marina and Mr Perera’s Ballys, MGM and Bellagio are the more popular ones. They are even advertised in the on-board magazine of SriLankan Airlines. They encourage excessive spending by referring to such expenditure as ‘investments’. I was surprised to read in one of the casino websites that they have ATM machines inside for the ease of making such investments! They also promote ‘entertainers from overseas’; perhaps the assortment of Southeast Asian and Eastern European women seen outside these establishments after dark could be the overflow from inside the casinos. However Mr Wijeratne says in his recent Daily Mirror interview that "casinos and prostitution are far apart and have no relationship whatsoever".

So how do these casinos operate, or rather, how did they operate?

If entering, playing or escaping from a ‘common gaming place’ defined as any place where public may have access with or without payment to participate in a game of chance with an instrument or appliance is punishable by fine or imprisonment or both, how do these casinos operate. A common loophole I presume was the argument that they were restricted to ‘members only’. It is in this background the imposition of a levy first came to being on betting and gaming in 1988. The Betting and Gaming Levy Act noted that a levy shall be charged for the year commencing on April 1, 1988, and in respect of every year thereafter, on every person who carries on the business of betting and gaming in Sri Lanka, whether lawfully or unlawfully. The levy for gaming was originally fixed at Rs 1 million per year. However it is important to note that the Act was very clear that the imposition of the levy did not confer any legal status to the business of a ‘common gaming place’. It said "Nothing in the preceding provisions of this section shall be construed as conferring legality on any business referred to in this section if such business is prohibited by law."

So over the years ‘members only’ gaming centers and jackpot machines operated by paying the levy except for the sudden reversal of policy when President Ranasinghe Premadasa banished the then infamous Joe Sim from the island and bulldozed all his jackpot machines. The annual levy of Rs 1 million set in 1988 was increased twenty-five fold in 2001 to Rs 25 million but perhaps due to fall in total tax revenue collected the levy was reduced to Rs 12 million in 2002 before being increased again to Rs 50 million in 2005 and finally to Rs 100 million in 2013 keeping with both inflation and sophistication of the gaming business, which by now had openly become glitzy casinos. In fact today membership at casinos is nothing but a farce. One website boasted, "Membership is in name only anyone can sign-in and play". The website of Marina Colombo says "We offer free membership to foreigners and to some distinguished Sri Lankans," reiterating the earlier statement and giving the lie to the story that casinos are restricted only to foreigners.

The Casino Business (Regulation) Act of 2010

It is in this background that Parliament of Sri Lanka on 7 December 2010 adopted a new piece of legislation to prohibit the business of a casino without a valid license starting from 1 January 2012. The opening paragraph, subsection (1), stated "No person shall, from and after January 1, 2012 engage in the business of a casino other than under the authority of a valid license issued in that behalf by the minister and within a specific area to be designated by the Minister by Order published in the gazette." It added "Any person who carries on the business of a casino in contravention of the provisions of subsection (1) shall be guilty of an offence and shall on conviction after summary trial be liable to be punished with imprisonment of either description for a term which shall extend to five years or to a fine of rupees five million or to both such fine and imprisonment." The Act clearly stated that any license issued shall be subject to terms and conditions and regulations.

It’s clear. All casinos are illegal as at 1 January 2012 unless licensed.

The question now is how many such casino licenses have been issued during the ‘grace period’ between 7 December 2010 and 1 January 2012? The answer is ‘none’. Then the question is how many casino licenses had been issued even after 1 January 2012? The answer is again ‘none’. If according to the law "no person shall, from and after January 1, 2012 engage in the business of a casino other than under the authority of a valid license" then Mr Wijeratne’s as well as Mr Perera’s casinos are illegal. It follows that they are "guilty of an offence and shall on conviction after summary trial be liable to be punished." In fact, not only that no licenses have been issued; no regulations have been made, no terms and conditions have been specified, no rules on how to make an application have been declared and no procedure to be followed in application and approval of a license has been identified by the Minister in charge of the subject of casinos, whoever that may be. Therefore it seems fair to believe that casinos currently operating are doing so based purely on the political patronage of their owners.

A cruel joke: 5 percent tax on GGR after removing 12 percent VAT and 2 percent NBT

Given the surge in opposition to the establishment of ‘illegal and tax free casinos’ the government decided to hurriedly amend the Betting and Gaming Levy Act instead of issuing licenses under the Casino Business (Regulation) Act. The 2013 amendment introduced a tax of 5 percent on gross collections at casinos known as GGR or Gross Gaming Revenue in the industry jargon. GGR is what the House makes after collections from gamblers less incentives to attract those gamblers minus winnings paid out by the House. What is unbelievable is that this 5 percent tax was imposed after waiving the otherwise 12 percent VAT and 2 percent NBT on these casinos. This is nothing but a cruel joke on the people.

How does it compare with others?

Consider for a moment the legitimacy of this 5 percent tax of GGR with other territories. In Macau, the casino capital of the world where last year’s GGR was USD 45 billion, the tax on GGR is 39 percent. In Singapore the tax on GGR (including GST) on mass customers is 22 percent plus regular corporate tax on profit. In the Philippines the tax on mass GGR is 27 percent plus corporate tax on profit. Even in Mr Packer’s own Australia tax on GGR is 29 percent besides corporate taxes and license fees; his recent license for the second casino in Sydney cost him 100 million Australian Dollars.

Back to James Packer’s casino license

Notwithstanding all the smoke and mirrors to confuse the public the fallacy in the declaration that Mr Packer could set up a casino at the Crown resort in Colombo by transferring free-of-charge Mr Wijeratne’s ‘invisible’ license can easily be established by the intelligent reader by now. The fact of the matter is no licenses exist to be transferred.

License is not a registration

A license is not a single-line registration with the Inland Revenue Department to pay the Betting and Gaming Levy. A license must have terms and conditions. Who can apply to operate a casino in Sri Lanka? What are the fit-and-proper conditions of potential casino operators? How will licenses be allocated? How long will the license be valid? What are the license conditions? What actions could be taken in case of license conditions being violated? How can a license be cancelled? How can a license be renewed? These are some basics in a license. Beyond the basics there are numerous other terms and conditions that deal with number of tables and machines, advertising, credit to gamblers, junket restrictions, rights of entry, police powers and who can be excluded from a casino etc. Besides, there are a whole series of other accounting and internal control conditions that deal with statements to be maintained, access to bank accounts, submission of records and stringent regulatory rules which include 24x7 camera-monitoring by regulatory staff and joint signatory on accounts with regulator etc. In fact the Australian regulations under which Mr Packer has obtained licenses to operate his casinos are over 100 pages long.

The Australian regulators are on the watch out for money laundering and bribery

It is well known around the world that Sri Lanka faces governance challenges. The fact that there is no rule of law, that institutions have become totally politicized, that politicians are by and large corrupt, that there is no independent judiciary and there is widespread white-collar-crime in the financial markets are serious issues that need to be overcome given the nature of the casino business. This is particularly so given casinos currently operating in Sri Lanka are not subject to any Anti-Money-Laundering controls and there are no mechanisms for monitoring and compliance. In fact the Victorian Regulator recently indicated that it was watching Crown’s expansion closely in to countries with public sector governance challenges and specifically mentioned that it was monitoring Crown’s investments in Sri Lanka. It also warned of potential non-compliance with Australian and international laws against money laundering and bribery.

The desperate and despicable lie

It is in this background that the government is attempting to spread the story that the casino, even if setup in the Crown resort, will be a marginal activity among the large hotel, shopping and dining etc. It is attempting to downplay the significance of a casino in the so-called super luxury resort. In fact this is a total fabrication. According to the Review of the Casino Operator and License of the Victorian Commission for Gambling and Liquor Regulation dated June 2013 the average proportion of the casino revenue for 2010 and 2011 of the Crown Perth ‘Resort’ was 77 percent, Crown Melbourne ‘Resort’ was 80 percent, Marina Bay Sands ‘Resort’ Singapore was 83 percent and Sands Macau ‘Resort’ was 87 percent. To say Crown Colombo will be anything less, and only marginal, is a desperate and a despicable lie. Crowns biggest business by far is the casino.

Either legalize casinos or shut them down; the choice is with the government

It should now be is clear to the reader the current situation with regard to casinos in Sri Lanka. Perhaps the government could argue that given regulations have not been enacted to apply the provisions of the Casino Business (Regulations) Act of 2010 the existing casinos could unlawfully operate indefinitely without a license. Perhaps the biased court could even agree with that argument just like it has on many other occasions in the recent past. But that is certainly not good governance. It is certainly not democratic rule. It is nothing but letting a couple of acolytes and their political masters become billionaires by completely disregarding the law of the land at the expense of the millions of innocent citizens who are sucked dry with regressive taxes to make up for the losses to the Treasury. We will continue to oppose all such illegal casinos as well as any moves by James Packer or anyone else to setup similar casinos in Sri Lanka. But, on the other hand, the government can always issue licenses to existing operators and to Packer and anyone else they wish and bring them under an acceptable tax regime as indicated earlier; that is their prerogative. How the President is going to extricate himself from the promise given the religious dignitaries and the people of Sri Lanka that he will never issue any (new) casino licenses is his problem.

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