The government will impose an additional tax bill on NagaWorld’s non-gaming operations this year similar to the $16.6 million added tax obligation it applied last year after conducting its first-ever audit of the iconic Phnom Penh hotel and casino complex, a Ministry of Economy and Finance (MEF) official said yesterday.
Ros Phirun, deputy director-general of the MEF’s Finance Industry Department, said NagaWorld will be on the hook for at least $16.6 million in non-gaming revenue taxes this year, though the final number will be subject to negotiation.
“From now on and for every year we will make NagaWorld pay at least $16 million on their non-gaming operations,” he said.
“There is no longer any excuse for a company that is this profitable.”
On Monday, NagaCorp, the Hong Kong-listed parent company of NagaWorld, reported a net profit of $150.6 million from its Cambodia operations during the first six months of the year, up 20.3 percent over the same period in 2016.
The government audited NagaWorld last year after it found “discrepancies” in its 2014 and 2015 financial reporting.
Auditors found that the company had previously claimed an exemption on non-gaming revenue taxes, citing a 2006 agreement that granted it a seven-year grace period to complete construction of its flagship 700-room hotel and casino in Phnom Penh. The term of the agreement, however, ended in 2013.
After poring over NagaWorld’s 2014 and 2015 financial statements, government auditors levied a bill of $16.6 million in back taxes on non-gaming revenue, which includes revenue from the complex’s hotel and restaurants.
NagaCorp has bolstered its profits over the past 20 years on a highly favourable tax arrangement with the Cambodian government and its 41-year monopoly on gambling within a 200-kilometre radius of Phnom Penh until 2035. The company pays a lump-sum monthly obligation for gaming and non-gaming activities instead of the Kingdom’s standard 20 percent corporate profit tax
Since 2003, NagaCorp – which pays no taxes in Hong Kong where it is listed or in Cayman Islands where it is registered – has paid an effective tax rate in Cambodia of less than 2 percent. Last year’s audit raised the effective rate to 6.7 percent in 2016, with a total $22 million paid to the MEF on $327.8 million gross profit.
NagaCorp reported $30.7 million in non-gaming revenue last year. In the first six months of 2017, the company posted $14.8 million in non-gaming revenue, “primarily from higher occupancy and average room rates as well as better performance across all the food and beverage outlets”, according to unaudited financial results.
Phirun stressed that all this revenue would be subject to taxation, and the company, would no longer receive “special exemptions” for unfinished construction of its facilities, including its Naga2 development. The $369 million development, which is slated to open in October, will add over 850 hotel rooms, 300 gaming tables and 500 electronic gaming machines.
“They have delayed and delayed the opening of Naga 2, and after a full year of operations we will apply the same type of tax to their non-gaming activities and there will be no special exemptions,” Phirun said.
“If you look at how this company is growing, they have to pay.”
NagaCorp executives could not be reached yesterday for comment.
The company stated in a filing on Monday that it was not aware of any additional tax obligation on non-gaming revenue this year, having previously described the $16.6 million tax settlement as a “one-off” fee.
“In the previous year, having discussed with the MEF, [Nagacorp] paid an additional obligation payment of $16.6 million to the MEF,” it said.
“As at the date of this announcement, there is no additional obligation, if any, for the period.”