Malaysian Casino Tax Rate and Why It Is Too High
Malaysia’s tax system is considered by many as being rather corrupt and opaque. This is because, unlike other countries in Asia such as Singapore, which has an official tax regime based on income and wealth, Malaysia has no legal mechanism that ensures tax compliance. Instead, there are numerous administrative fees and blackmails that have contributed to the growing problem of tax evasion and money laundering in the country. As such, it is not surprising that the latest news about a high Malaysia casino tax rate has caused consternation and concern in the gambling community. What is being discussed is whether this could impact the profitability of some Malaysian gambling establishments.
The Malaysian tax authorities are now reportedly investigating whether online casinos should be subjected to an internal rate of taxation similar to that of land-based casinos. It should be noted that the government and Gaming Commission of Malaysia have long debated the introduction of a land-based tax on gaming activities in the country. This is because they fear that such a move would reduce the government’s incentive to encourage gambling growth in the country.
On the other hand, the Gaming Commission contends that its new regulation, which is focused on limiting the amount of taxes payable by casinos, does not constitute an attempt to limit growth. In fact, it is aimed at ensuring that the profitability of Malaysia casinos is not affected. The current law stipulates a maximum tax rate of 5 percent on gaming activities in any one establishment, including casinos. However, the Gaming Commission claims that this rate is meant to ensure that casinos only contribute a fraction of the country’s Gross Domestic Product (GDP).
What is remarkable is the way that this new regulation has been framed. While the intention was to introduce a casino tax rate that is conducive to business profitability, the regulators have gone to great lengths to ensure that they do not jeopardize this goal. For instance, it requires each casino to register its income before claiming any tax benefits from the levy. In addition to this, the Commission insists that the payment of the tax will be done only after a company pays an annual ‘risk assessment fee’ of AEDK. All of these measures are meant to prevent businesses from gaming the system, and end up paying for the government’s decision when they do.
This raises the obvious question: where do you stand on the issue of gambling and tax? Malaysia’s approach to this tax is distinctly different than most of the rest of the world. While neighboring countries, such as India and Singapore, have long had very low rates on gambling, Malaysia has long been reluctant to follow this path. On the one hand, it perceives its gambling industry as a vital part of the nation’s developmental process – as it is a vital element in the country’s efforts to become a developed nation. On the other hand, it also believes that taxing the sector constitutes a disproportionate use of its revenue resources, and should therefore be avoided.
One reason why the Malaysian government has been reluctant to increase the tax on casinos is because it considers gambling to be a social issue – especially in terms of the low wages typically associated with them. On the surface, this seems like a pretty rational viewpoint. After all, who wants to pay more taxes when they can simply enjoy a good game of poker at home, or watch a movie in a movie theater? However, it is important to recognize that these arguments often obscure the underlying reality: that gambling is a business and as such should be regulated in order to protect the interests of the country’s investors, while still maintaining a comfortable level of competitiveness with other nations.
It is this duality that complicates the issue of how to regulate gambling. On one hand, there is the desire to maintain competitiveness by ensuring that the country’s gaming companies continue to operate freely and competitively. By encouraging gambling operators to operate in a responsible manner and minimize their tax bill, the government is hoping that it can lure new investments into the country. In many ways, this makes perfect sense. If you are able to attract investors to your casino in the same manner that you are able to attract investors to other countries, then there is a strong likelihood that your gambling operations will succeed.
The problem is that the Malaysian government has done little to make this happen. While the Malaysian Investment Corporation does have some power over the determination of the Malaysia casino tax rate, the government has been unwilling to use this position to effectively prevent jurisdictions from increasing their tax rates on the gaming industry. Instead, the government tends to point to arbitrary reasons that seem to have no basis in rationale. While politically convenient, these reasons do not make much sense. Ultimately, any attempts by the Malaysian authorities to apply a level of regulation to the gambling industry will simply be a waste of time and money. As the casino industry continues to flourish in countries across the world, the argument over the Malaysia casino tax rate should not even be in the cards.