Operators in Russia’s Far East have won a reprieve from a potentially punishing new tax region and are now discussing further development plans with the government of the zone.
In November last year, President Vladimir Putin signed into law changes that allow Russia’s gaming zones to double the tax they charge as part of a plan that may see taxes surge tenfold by 2020. As part of those changes, the central government also announced it would force casinos to collect tax on client winnings, though did a subsequent U-turn on that measure following an outcry from the industry.
After listening to representations from operators, the government of the Primorye region, where the Primorye Integrated Entertainment Zone is based, chose to maintain the current tax regime to keep investors happy.
“Since the founding of the gambling zone, residents have invested about RUB11 billion (US$193.8 million) in the economy of the region, created a thousand jobs and about four thousand jobs in related fields,” vice-governor responsible for economy and finance Tatyana Kazantseva said. “The amount of taxes paid from the gambling zone is about RUB322 million a year. In order to provide stable business conditions, the regional Administration suggested not to increase these rates,” said Kazantseva in a statement.
Unlike most other jurisdictions, Russia does not levy tax on gambling revenue, but on each table and machine in operation. Primorye currently charges RUB125,000 per table and RUB7,500 per slot machine and the relatively low fiscal regime has been a key draw for foreign investors.
The Primorye zone is currently host to Tigre De Cristal, the territory’s first gaming resort which opened in 2015. Two more major gaming and entertainment facilities have begun construction – including Selena, operated by Diamond Fortune Holdings, and Naga Vladivostok, owned by Cambodian gaming company NagaCorp – both set to open in 2019.
The local government met with investors earlier this year to hear their plans. Officials are said to be frustrated at the slow pace of expansion in the zone and want to speed up progress. The company charged with developing the zone is also planning to auction off new plots in the near future after suspending efforts to attract further investment last year.
Tigre De Cristal is the only casino in operation in the zone and its performance is improving after a slow start amidst regulatory uncertainty and geopolitical tension.
For 2017, Tigre de Cristal saw a gain of 32 percent in adjusted property EBITDA from HK$131.5 million in 2016 to HK$173.7 million in 2017. Net revenue from gaming operations was HK$434.1 million, driven mainly by a 33 percent gain in rolling chip turnover. Mass revenue was up just 13 percent.
In the past, management has expressed frustration at rampant illegal gambling in the zone, which is syphoning off local clients leaving the IR reliant on the foreign VIP.
G1 Entertainment, the local operator behind Tigre De Cristal, told the government recently that it’s planning the second stage of the casino resort which will focus on non-gaming facilities, with a rollout planned for the second half of 2019.
G1 is a unit of Oriental Regent, which is 60 percent owned by Hong Kong-listed Summit Ascent Holdings.
“We want to do more than we have already done,” G1 Entertainment executive director Stylianos Tsifetakis said. “Our management considers the development of the non-gambling sector to be promising and plans to create more entertainment facilities within the second phase. In our opinion, this will be useful both for the development of the gambling zone and for the social and economic development of the entire region. We plan that in summer the draft plan of our new entertainment complex will be finally approved and we will be able to present it to the Primorye authorities,” said Tsifetakis during the meeting.
According to previously announced information, the second phase of the project development will include 500 hotel rooms, areas for negotiations, as well as restaurants and bars.
Tsifetakis noted that during the second stage of the construction, the expansion of the shopping area is planned, and the possibility of improving the site for sporting events is also being considered.
“We are considering the possibility of creating a golf club and a ski resort. These are the kinds of entertainment that will allow you to relax at Primorye all year round. In addition, our new Taiwan shareholder plans to create one of the largest shopping centres in the Far East in the seaside gambling zone.
He has already successfully launched the work of nineteen major shopping centres in the territory of mainland China and sees the prospect for the development of this direction in Primorye,” Tsifetakis said.
The decision to create a large shopping area was influenced not only by potential demand but also by the possibility of introducing a duty-free trade zone in the region, where foreign citizens would be able to get tax relief.