KUALA LUMPUR (Oct 20): Genting Malaysia Bhd (GenM) can employ several measures to minimise the negative impact from the two percentage point (ppt) service tax rate hike proposed in Budget 2024, according to Maybank IB Research.

In a note on Thursday, the research house said as per Budget 2024 tabled last Friday, the service tax rate will be raised to 8% from 6% currently from March 1, 2024 onwards.

It said one of the taxes that Resorts World Genting (RWG), which traditionally contributes more than 80% to Genting group’s earnings, pays is the service tax.

“RWG bears the service tax for gamblers.

“For RWG, the service tax is currently calculated as (gross gaming revenue — casino tax) X 6/106. Thus, the increase in service tax rate by 2ppts is effectively a ‘gaming tax’ hike for RWG,” it said.

Employing the formula above, Maybank IB trimmed its FY2024E/FY2025E earnings estimates for GenM by 4%/5% (incorporating the service tax hike effective March 1, 2024) and DCF-target price by 3% to RM2.70.

“Thus, the impact to GenM from the service tax hike is, while noticeable, minimal by our estimation.

“Moreover, RWG can cut junket commission rates or direct VIP rebates rates, raise hotel room rates, delay salary increments and ration water and energy consumption to moderate the impact of the service tax hike,” it said.

Maynbank IB also said it hoped the current 15% shortfall in RWG visitor arrivals relative to 2019 will be narrowed with more tourists from major source markets like China and India.

“Pre-Covid, 40-50% of Chinese tourists visit RWG,” it said.