I think investors have still not completely understood the magnitude of this decision. It isnt the tax rate of 28% that matters, but rather the fact that it is going to be levied on the full face value of the chips rather than on the casino’s revenue. So if you go to Deltin Royale and wanted to buy chips worth Rs 1000, you would now have to pay Rs 1280. This used to not be the case earlier. Earlier, you would get Rs 1000 in chips for Rs 1000 and the casino would pay 28% tax on the amount you lost.
In my opinion, this is a complete killer. Though we have to wait and see the impact, I think the casino under this rule becomes effectively a worthless operation. I was trying to find any examples of geographies where tax is levied this way at a rate higher than 5% and still has a thriving casino industry and couldnt find a single one. See example of Kenya where a similar tax was introduced at a comparable rate and completely destroyed the industry.
In my view equity of the company ex of the cash on the books now only has option value. It will be valuable again if the govt decides to rollback this tax, else the equity value is probably 0 for both the casino and online gaming operation. This is unless the company finds some creative loophole to get around this tax.
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