New tax threat in Laos dispute

An entertainment complex owned by Sanum Investments could be forced out of business in the latest development in an ongoing dispute with the Lao government.

The Laotian government has passed an 80 percent gaming revenue tax regulation that could put a large entertainment complex in Laos owned by Sanum Investments out of business, according to Jody Jordahl, president of the Macau-based real estate investment firm. 

Daniel Harrison, tax manager for Laos at VDB Loi, a law and tax advisory firm, confirmed that the government passed the regulation and explained that it is part of a larger excise taxation measure. 

Originally, the tax on the gaming industry had been 15 percent, he added.

If the new measure is implemented, it would effectively force the closure of Laos-based Savan Vegas Hotel and Entertainment Complex, which employs 2000 and is owned by Sanum, Jordahl told Private Equity International.

You just have to be very careful when you invest.New markets are an exciting place to be with a lot of opportunity, but being first to the market means a lot of those protections you’re used to are not there

Jody Jordahl, president, Sanum Investments

“No company can afford to pay 80 percent of gross revenue to the government.” 

Sanum has been in a legal dispute with the Lao government since August 2012, when control of the Thanaleng Slot Machine Club, located near the capital Vientiane, was seized by a Lao family group. Jordahl believes the move was done through the family's connections to the Lao government.

Thanaleng was 60 percent owned by Sanum. According to the firm, at the time of takeover the casino was generating $3 million per month in net income.

Two months after the casino was taken over, the Lao government ordered Sanum to pay a disputed $23 million tax bill and threatened to arrest senior executives and directors if the firm did not comply. Sanum said it had received a “questionable audit” and “baseless tax claims” from the Laos government and is fighting the claim, PEI reported earlier.

Jordahl hired law firm Debevoise & Plimpton and arbitration proceedings with the Laotian government began in May in London. The parties set an agreed upon timeline and he expects a final decision in 2014. 

He believes the latest tax is a procedure for the government to appropriate Savan Vegas through excess taxation. 

“In theory, the tax impacts all gaming establishments in Laos,” Jordahl said. “But all others have a separate flat tax agreement negotiated with the government. Sanum also has a flat tax agreement that expires at the end of the year, but the government has been unwilling to grant an extension. So in reality the only business it impacts is ours.”

Jason Wright, associate managing director of risk management firm Kroll, would not comment on the Sanum dispute. But he did say that Laos is poised to benefit from regional growth and investor disputes can negatively impact the inflow of foreign capital. 

“Anytime you have a case where foreign investors may not have been treated in accordance with the rule of law, that always has an extremely discouraging effect on foreign investment,” Wright said.

Laos is poised to benefit from regional growth and investor disputes can negatively impact the inflow of foreign capital

Jason Wright, associate managing director, Kroll

He added that the gaming sector worldwide has singular issues that raise investment risk. In other countries it has been connected to organised crime and money laundering.

Before making the initial investment in Laos, Sanum did due diligence on the deal and received commitments from the government and its local casino partners, Jordahl said, adding that Sanum structured the contracts well and the investment was clearly communicated and well received. Relationships broke after the operation showed increasing profit, he said.

In hindsight, there was nothing more his firm could have done pre-investment, he said.

“You just have to be very careful when you invest,” Jordahl said. “New markets are an exciting place to be with a lot of opportunity, but being first to the market means a lot of those protections you’re used to are not there.”