Beijing May Disapprove Of Macau Gambling Boom

by Mary Swire, Tax-News.com, Hong Kong

23 March 2005

Mainland China's government is thought to have cracked down on excessive advertising of Macau's casinos, which are said to have contributed $1.8 billion last year to the city's coffers, nearly 70% of the local administration's tax income.

Macau, an ex-Portguese colony which became a Special Administration Region of China, like Hong Kong, in 1999, has the only legitimate gambling in China, and floods of gamblers come to play every day. Arrivals and the size of the drop shot up after the Government allowed the establishment of foreign-owned casinos two years ago. Now Beijing seems to be having second thoughts, and is said to have leaned on Macau's government to rein in the exuberant casinos.

The Government hopes to diversify Macau's economy by attracting foreign investment and is committed to maintaining an investor-friendly environment. The tax rate is 15% for a company's net profits greater than $37,500. For net profits less than $37,500, the tax ranges from 2% to 15%. In his November 2004 annual policy address, Chief Executive Edmund Ho said that his administration planned to submit a proposal to the Legislative Assembly in 2005 to lower the rate of corporate income tax so that it is closer to the personal tax rate. The top personal tax rate is 12%, and a 12-13% corporate tax rate would be one of the lowest in the world.

The Government is seeking to develop Macau into a commercial and trade service provider for China, particularly the West Guangdong region. It also aims to facilitate trade and economic cooperation between China and Portuguese-speaking countries.

Macau and the PRC implemented a free trade agreement, the Closer Economic Partnership Arrangement (CEPA), on January 1, 2004. The agreement is similar to the Hong Kong-PRC CEPA. It provides for market opening in 501 product and 26 service sectors and provides for trade facilitation measures.

After 1999, the relocation of manufacturing facilities across the border to Zhuhai in China drove up unemployment rates, but the recent increase in the number of gaming facilities and hotels is having a positive impact on employment. The Government will be reluctant to see its golden gambling goose injured or killed before it has been able to establish replacement industries.

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