SEG 18 DE JUNHO DE 2018 - 02:41hs.
Federico Lannes
OPINION - FEDERICO LANNES, International Gaming Consultant

Gaming taxes: Economic growth, employment and Brazil's chance

Can a government, through its fiscal policy, encourage or hinder economic growth and employment? Brazil expects big investments with the approval of the gaming draft laws. This project could generate US$5 billion in taxes and generate around 500,000 direct jobs. In this article I will try to answer this question and the reader can draw their own conclusions

Gaming taxes: Economic growth, employment and Brazil's chance
A few months ago in Panama, the ASAJA (Business Association Gaming Games) The entrepreneurs of the gambling industry asked the Government to eliminate the 5.5% tax that is being charged directly to players, win or lose. in bingos, casinos, slots and sports bets due to the fall of the activity since 2015 when it was legislated.

The tax aimed the social security system, to benefit retirees.

The impact in economic terms between 2015 and 2017 has been (1):
  • Casino table games fell (-31.3%) in the period 2015/2016
  • Loss of 2500 jobs out of a total of 8000 workers, a drop of (-31%) in the labor force, also reducing the 3 daily shifts per day to only two.
  • Drop in tax revenue by 21.5% according to the game control board since the implementation of the tax in 2015.
  • Closure of bank accounts by private and state banks to casinos.
  • Increased gambling in the streets, not the casinos
  • In other Latin american countries like Argentina and Uruguay also recently increased gaming taxes to improve the collection for the Social Security System. 
High tax rates do not always lead to good public services

Complicated tax systems are associated with high evasion. High tax compliance costs are associated with larger informal sectors, more corruption and less investment. Economies with simple, well-designed tax systems are able to help the growth of businesses and, ultimately, the growth of overall investment and employment.
 
Taxes at the Gaming Industry in USA

We will see now the outcome of different tax policies result in different economic results by state in USA.
It is important to remember that even in the global economy, states’ toughest competition often
comes from other states in a country. 
States with more competitive tax systems score well in the Index, because they are best suited 
to generate economic growth.
The Tax Climate Index is an indicator of which states’ tax systems are the most hospitable to business and economic growth. The State of Nevada is ranked number 5 in the overall classification.

(1) Fuente: Diario La Estrella de Panamá, y ASAJA (Asociación de Administradores de Juegos de Azar)

 

Source: own compilation - based on Tax Foundation.
Best rank = 1 ; Worst rank = 50

Let’s take a look on the impact the fiscal policy had on Nevada, regarding Economic growth and employment.

Nevada Economic growth based on Casino Industry
 
 
 

Sources: Own Compilation, based on (AGA, 2016 State of the States and 2017 Rubin Brown’s Gaming Statistics).

As we see on the exhibit, the states with the lowest effective tax rates generates the highest consumer spending on the casino In 2016. The commercial gaming industry segment generated $38.7 billion. The state of Nevada generated 11.114 USD billions in consumer spending in 2015 with the lowest effective tax rate in the ranking (7,8%). The commercial gaming segment consists of 581 casinos operating in 24 state gaming jurisdictions. When comparing the commercial gaming market to the overall industry, it accounts for 52.9% of the United States gaming industry (3)

Lets see the main benefits the gaming industry provides to the state of Nevada.

Tourism

Vegas establishes a new visitation record. In 2016, 42.9 million people visited the city, a 1.5% increase from 2015. Since 2007, overall visitor volume has increased 7.9%. While gaming revenues have not returned to pre-recession levels, the Las Vegas Strip’s hotels are once again enjoying occupancy rates of 90% with the average daily room rate up 4.5% from 2015.

Employment

According to Nevada Resort Association:
  • The casino industry generates 337,700 employees. 
  • Hotel-casinos make up 12 of the 20 largest employers in the state
  • When indirect and induced impacts are considered – derived from local supplier purchases and employee spending in other sectors of the local economy – Nevada's tourism industry supports an estimated 432,000 jobs 
Taxes
  • Nevada's tax structure continues to be one of the least burdensome on the average citizen in the nation (ranked number 5 out of 50 states) for the following reasons:
  • Residents pay very low per capita taxes. 
  • Property taxes in Nevada are far lower than most states
Education
  • Over a third of all funding for Nevada's public schools comes from the gaming industry. 

Conclusion

An efficient tax administration can help encourage businesses to become formally registered and the economy to grow and thus expand the tax base and increase tax revenues. 

Brazil hopes large investments with the approval of the gaming bills of law, which is part of the so-called Agenda Brazil, an initiative to stimulate the economy. This project could generate US $5 billion in taxes and will generate about 500 thousand direct jobs in the gaming market, in addition to the indirect ones, now needed to reduce unemployment. This is a great opportunity for the country as long as the regulatory framework and taxes are predictable over time. Successful models of regulation and fiscal framework such as we have seen in Nevada, will provide predictability for investors that are waiting to restore gaming from illegality and providing quality work to thousands of Brazilians also contributing to the long-awaited economic development of Brazil.

(3) Source: 2017 Rubin Brown’s Gaming Statistics Report
 
FEDERICO LANNES 
 

Federico Lannes – Certified Public Accountant, Master in Business Administration at (INCAE/Harvard). Member of the Institute of Internal Auditors (IIA), Ex-CEO del Intercontinental Mendoza, General Manager at Salto Hotel and Casino (Uruguay), General Manager at Altos del Arapey Hotel (Uruguay). Casino Internal Audit Manager, casino credit manager and compliance Officer at Iguazu Grand Resort and Casino (Argentina), Business Consultant at hotels and casinos (in Paraguay). Consultant at Ernst&Young (Argentina). Mr Lannes has been a scholar of the organization of American states at INCAE MBA program in Costa Rica. He has written many articles in argentinian newspaper like infobae, Fortune Magazine, Empresa Magazine, Boletim de Novidades Lotéricas (Brazil), andGames Magazine Brazil. Speaker at Brazilian Gaming Congress, 2d and 3rd edition. Specialized in management, taxation, gaming compliance and hotel-casino openings. Ex- professor of finance at the university of Palermo in Buenos Aires.