Since the Integrated Resort Promotion Bill was passed late last year in the Japan Diet, a special task force in the Cabinet office has been working on preparations for the legislation’s next phase, the Integrated Resort Implementation Bill.

Although the bill has cleared the first step of the legislative process, many difficult hurdles must be overcome before it becomes a reality. Two issues that need particular attention, and could be major stumbling blocks, are the formulation of the casino tax rate and the need to avoid conflict with Article 185 of the Japan criminal code.

A low casino tax rate by itself will not be appealing to overseas operators and must be considered together with the corporate tax rate. The current effective corporate tax rate in Japan is around 35 percent on average, which is considerably high compared to Macau and Singapore.  In addition, if the casino tax is set high compared to existing overseas casino resorts, the Japan casino market will become less attractive for overseas operators and may make them less hesitant to invest.

Furthermore, the Japan IR project requires overseas operators to form partnerships or consortiums with multiple major Japanese companies; in which case it will be extremely difficult to determine the upper limit of the shareholding percentage for the foreign operators.

In addition, the casino credit for players arising from casino operations must be in accordance with banking business in Japan, and will fall under the supervision of the Financial Services Agency of Japan.  Therefore, in addition to the revision of the banking law, it will become necessary to establish regulations and management methods for credit procedures, which will take a considerable amount of time.

The next difficult issue that must be tackled is the fact that casino gambling clearly conflicts with Article 185 of the criminal code of Japan. Currently two ideas on how to permit casino gambling under certain conditions based on justifiable noncompliance with the law are under consideration:

The first idea would treat casino gambling similar to horse, bicycle and speedboat racing, where a local government or its equivalent would establish the casino.  Under this scenario, casinos would be owned and administered by a public organization, but operations will be left to the private sector.

The second idea involves placing the resorts outside the scope of Article 185 by limiting them to specific locations, which would require a special resolution of the National Assembly, the supreme decision-making body. However, the Japanese Ministry of Justice has indicated that this would be very difficult to accomplish and would require further study.

VISITATION PRIVILEGES

Besides these two issues, how to control visitors/ players/ gamblers is also important. Age restrictions, how to control admission with ID, countermeasures for gambling addiction by limiting admission, whether admission fee is adequate, whether to utilize a personal ID number system, and how to monitor personal gambling income are among the many things that have to be studied and debated.

The special task force is supposed to submit the Integrated Resort Implementation Bill to the Diet within one year after the Integrated Resort Promotion Bill was passed, but it may take much more time to prepare the bill, given all of the enormous details that need to be resolved, including the issues mentioned above.

The passage of the promotion bill in the Diet raised integrated resort developer expectations in Japan to a fever pitch; but it is the final determination of visitation, taxation and other issues that will ultimately determine if the Japanese casino market will be a bonanza investors envision.