Kangwon, Paradise Fall on Plan to Double Casino Tax

(Bloomberg) — Kangwon Land Inc., the operator of South Korea’s only casino open to local citizens, fell the most in almost seven years in Seoul trading after the government announced plans to double the casino tax next year.

Kangwon Land dropped by the daily limit of 15 percent to 15,950 won, the biggest drop since Oct. 24, 2001. Rival Paradise Co. declined 15 percent to 2,085 won, the lowest since November 2002. The benchmark Kospi stock index fell 0.5 percent.

South Korea intends to raise the tax imposed on casino operators to 20 percent of net sales by Jan. 1, the Ministry of Strategy and Finance said yesterday. The National Gaming Control Commission earlier said it aimed to limit the annual revenue of the country’s gambling industry, including horse racing, lotteries and casinos, to about 14 trillion won ($ 12.4 billion).

„The unexpected announcement on casino tax will significantly dampen investor sentiment for the stock, which was showing some signs of recovery,“ Lee Wang Sang, an analyst with Woori Investment & Securities Co. in Seoul, wrote in a report today. Lee reduced Kangwon Land’s earnings estimate for next year by 16 percent to 1,569 won per share.

Officials at Kangwon land weren’t immediately available to comment on the government plan.

„Imposing a 20 percent tax on companies suffering from stiffer competition and falling profit is just like they are telling us to shut down shops,“ Paradise said in an e-mailed statement today. „If they take away 20 percent of net sales, most of the companies will go out of business.“

Citigroup Downgrade

Kangwon Land’s rating was cut to „sell“ from „hold“ at Citigroup Inc., according to a Sept. 1 note to clients from analyst Sean Lee. Citigroup also cut Kangwon Land’s target price by 21 percent to 17,000 won and lowered estimated earnings for 2009 and 2010 by 17 percent and 16 percent respectively, citing the planned tax increase.

South Korea plans to raise the casino tax to expand its sources of revenue and to take the „social aspects“ of the gambling industry, the ministry said. The government’s plans also include reductions in income taxes and the removal of some property taxes to spur economic growth.