KUALA LUMPUR: Gaming companies, which were down on their luck with increased duties in last year’s Budget 2019, are probably hoping that no negative surprises will be thrown at them in the upcoming national budget.

DBS Group Research gaming analyst Cheah King Yoong is of the view that gaming players will be given a respite in this year’s Budget 2020, which is scheduled to be tabled on Friday.

“At present, we maintain our stance that there will be no tax hikes for the gaming players in the upcoming budget. For Genting, we believe that the group has been heavily penalised by Budget 2019 last year with punitively high casino taxes and increased casino licence fees. Therefore, they are more likely to be spared in this year’s Budget 2020,” he wrote in a report last Wednesday.

“The Genting Group has also helped to pump-prime and create jobs for the domestic economy through its multibillion Genting Integrated Tourism Plan, which will directly/indirectly increase contributions to government coffers,” he added.

Budget 2019 brought several whammies to gaming firms — Genting Bhd and Genting Malaysia Bhd. They involved: 1) a hike in casino licence fees from RM120 million to RM150 million per year; 2) a hike in casino duty from 25% to 35% of gross gaming income; 3) the machine dealer’s licence fee being increased from RM10,000 to RM50,000 per year; and 4) the gaming machine duties being increased from 20% to 30% of gross collection.

For numbers forecast operators (NFOs), they were hit by the reduction of special draws by half to 11 draws per year.

Cheah sees the NFOs at risk for a tax hike in 2020 as they are on a stronger financial footing since late last year on the back of more stringent enforcement by the authorities in curbing illegal NFO activities.

“Furthermore, a considerable time has passed since the authorities last implemented a tax hike for the NFO sector,” he said.

Cheah estimates that a 1% increase in gaming tax or betting duty could reduce Berjaya Sports Toto Bhd (BToto) and Magnum Bhd’s forward earnings by about 7% and 8% respectively.

Maybank IB Research analyst Samuel Yin Shao Yang concurred, noting that the last time NFO gaming tax rates were revised was more than nine years ago in June 2010 when the pool betting duty rate was hiked two percentage points (ppts) to 8%.

“We do not discount the possibility that NFO gaming tax rates may be hiked during Budget 2020,” he said in a report last Tuesday.

Yin estimates that every 1ppt hike in the gaming tax or pool betting duty rate will cut its earnings per share for Magnum and BToto by 7%.

“For the government, all else being equal, we estimate that every 1-ppt hike in the gaming tax or pool betting duty rate will raise an additional RM80 million to RM90 million in tax revenues,” he added.

Budget 2020 may also leave sweet-toothed consumers with a bitter aftertaste if what Maybank IB Research predicts is accurate. In its Budget 2020 Preview last Tuesday, the research firm said the sugar tax coverage — currently charged on canned and bottled drinks based on sugar content level — may be broadened to include powdered brew like the 3-in-1 coffee mix and carbonated drinks sold at fast-food restaurants.

Since July 1, an excise duty of 40 sen has been imposed on beverages with more than 5g of sugar or sugar-based sweetener per 100ml.

‘No new taxes remark also implies no tax cuts’

Themed “Shared prosperity: Sustainable and inclusive growth towards high income economy”, CGS-CIMB Research does not expect Budget 2020 to propose any new taxes.

“We believe that the dual priorities for Budget 2020 — for example, guarding against downside risks to Malaysia’s growth outlook and advancing the government’s “Shared Prosperity 2030” agenda, as well as a continued commitment to long-term fiscal consolidation — will keep the Budget 2020 deficit target at a prudent 3.2% of gross domestic product (GDP) versus 3.4% of GDP in 2019 and the initial target of 3% of GDP in 2020 set in Budget 2019,” it said in a note to investors last Wednesday.

CGS-CIMB Research said the government may also consider the acceleration or resumption of “shovel-ready” megaprojects to inject some pace into economic growth if it turns lacklustre, such as the RM44 billion East Coast Rail Link project, the Klang Valley Mass Rapid Transit Line 3 (MRT3), which had been suspended after the 14th general election, and the RM4 billion Johor Baru-Singapore Rapid Transit System (RTS) link, which has been suspended since May.

On Aug 5, Finance Minister Lim Guan Eng was reported as saying that the government was unlikely to introduce new tax measures in Budget 2020.

“To us, the finance minister’s ‘no new taxes’ remark also implies no tax cuts,” said Maybank IB Research.

The research firm also points to the potential listing of Petroliam Nasional Bhd’s (Petronas) subsidiaries, of which the name of Petronas Carigali Sdn Bhd has been floated, although there are also other potential candidates such as Petronas LNG Sdn Bhd.

“An alternative to listing of Petronas subsidiaries is for the national oil company to pare down its current stakes of between 61% and 76% in its listed subsidiaries for example, KLCCP Stapled Group (76%), Petronas Dagangan Bhd (70%), Malaysia Marine and Heavy Engineering Holdings Bhd (67%), Petronas Chemicals Group Bhd (64%), MISC Bhd (63%) and Petronas Gas Bhd (61%),” said Maybank IB Research.

Kenanga Investment Bank said apart from the much-awaited revival of the Kuala Lumpur-Singapore High-Speed Rail and MRT3 projects, the potential revival of the Johor Baru-Singapore RTS Link could also be one of the key projects for next year.

“Furthermore, some of the 121 projects outlined for 2019 may be pushed through to next year due to delays caused by adopting a more transparent open tender process,” it said in its Budget 2020 preview last Thursday.