Posts Tagged ‘gambling’

Casino tax study exposes pachinko to greater scrutiny

Monday, September 8th, 2014

Where's the money? Pachinko patrons at an off-site exchange booth

Where’s the money? Pachinko patrons at an off-site exchange booth

In line with plans to make casino gambling legal in Japan, the government needs to come up with some sort of scheme to tax gambling receipts, but even before they do that they have to address another problematic potential revenue source: pachinko. As it stands, pachinko winnings are not taxed and pro-casino forces are thinking of implementing a 1 percent levy on those winnings, so they went to the National Police Agency and asked for figures to see what kind of tax revenues they could expect. An NPA representative told them, seemingly with a straight face, that they don’t keep such statistics since there are no winnings.

Classic pachinko is like pinball in that the player earns points by being able to send balls into certain holes, which gives him more balls to play with. In gambling terms, a player wins when he ends up with more balls than what he started with. However, pachinko parlors cannot reimburse the player for the balls he wins. Instead they give him tokushu keihin (special premiums) — ball point pens, lighter flints, etc. — in exchange for balls. Then, he can take those premiums to an off-site, unaffiliated shop that buys them with cash. The shop then sells the premiums back to a wholesaler, which, in turn, redistributes tham back to pachinko parlors.

This “three-shop exchange system” (santen kokan hoshiki) bypasses anti-gambling laws because the venue where the customer plays the game does not offer cash rewards. Everyone understands this system and how it works, but the police representative told the group of lawmakers that they don’t have figures because “we don’t know anything about places” where pachinko players exchange prizes for money.

According to the Asahi Shimbun, the lawmakers were “disgusted” with this ingenuous display of “tatemae” (official principle). The group, established last February, believes a 1 percent tax on pachinko winnings would generate ¥200 billion a year in revenues for the government, which is important since the present administration has decided to reduce the amount of corporate tax it collects and has to make up the shortfall somehow. Consequently, according to the Asahi, these lawmakers have to “destroy” the illusion that people don’t exchange pachinko balls for cash, which means they have to publicize the three-shop system and explain it for what it is, which is gambling by indirection.

The system was devised in Osaka in the 1960s. At the time, players exchanged the premiums they won for cash directly from organized crime members. Later, the police forced underworld elements out of the business and entrusted the exchange system to local chapters of the Japan War-Bereaved Families Association, which consists of people who lost heads-of-household and other loved ones on the front lines in World War II.

It was a form of public welfare, and at this point the NPA acknowledged, albeit tacitly, that pachinko exchanges weren’t strictly illegal any more. Eventually, they set up their own bureaucratic organization, the Pachinko Gyokai Dantai (Pachinko Industry Group), and staffed it with retired NPA officials to administer the exchange system. Some media have said that profits from the system go into the police pension fund and other NPA-related schemes. In any case, the police have never allowed anyone outside this organization to have anything to do with the system.

So if the government passes a law to tax pachinko winnings it would be an automatic admission that pachinko is gambling, so there is a fundamental disconnect between the government and the police with regards to the game. This could spell trouble for the proposed Casino Promotion Law, since foreign companies want to invest in casinos but will certainly ask why their businesses are taxed and pachinko parlors aren’t. That’s why the government wants to clarify the situation. On July 24, lawmakers essentially told the police that if they cooperate they won’t be held responsible for the last 30 years of looking the other way with regards to a semi-legal gambling system, but the NPA seems loath to admit as much.

In a separate interview with the Asahi, pachinko writer Pokka Yoshida explained the situation in more detail, saying that the the police-controlled Pachinko Gyokai Dantai isn’t, as some may think, corrupted by the pachinko industry itself. In actuality, they control the industry, which is in thrall to the three-shop exchange system. If the police take that system away, the industry is nothing, so they do anything the police ask.

In Yoshida’s words, the pachinko industry is in a constant state of crackdown. The relationship started in 1985 when the Law to Regulate Businesses that Affect Public Morals (fuzoku eigyo-ho) was revised. Police said they were going to be more aggressive about controlling pachinko, and later introduced a prepaid card system for buying pachinko balls in parlors.

The person who promoted this system was Katsuei Hirasawa, a Diet politician who was once an NPA bureaucrat. The idea was to understand exactly how much money pachinko parlors were making, since the industry was famous for fudging accounts and evading taxes and sending money to North Korea, where many people in the industry had families. In order to spread the use of prepaid cards, the police controlled the manufacture of certain new types of pachinko machines that allowed proprietors to adjust the odds of winning so that they could “incentivize” their parlors: Players are always looking for machines with better odds of winning. Police made sure that when these machines were manufactured, they couldn’t accept cash, only prepaid cards.

When pachinko became a “social problem” in the late ’90s, according to Yoshida, the police, through the PGD, had some 700,000 “socially problematic” machines removed from parlors. As it happens, these were cash machines, thus establishing the prepaid card system as the standard. But now, Yoshida says, the actual pachinko industry is trying to get away from police control, and so they are working with “the political world” behind the scenes to break free of the PGD. The police, understandably, are resisting.

Local government attempts to make citizens rat on welfare recipients

Wednesday, April 3rd, 2013

A goal of the resurgent Liberal Democratic Party is to reduce public welfare expenditures over the next three years by cutting handouts to the tune of ¥67 billion, or about 10 percent. The targets of these cuts are households who receive more money in welfare than do “lower income” households who don’t, the purpose being to bring the monthly payments made to non-working poor families down to or below the monthly earnings of working poor families. Thus the public assistance payment for a family of four would drop from an average of ¥220,000 to ¥200,000.

They call it gambling: Pachinko enthusiasts waiting for their loot

They call it gambling: Pachinko enthusiasts waiting for their loot

As to what this family would have to give up, one category ripe for reduction is “recreation” (goraku), which includes everything from TV sets and PCs to books and magazines. However, according to a 2010 government survey, welfare recipients only spent 6.4 percent of their money on recreation, and due to the LDP’s prime bugbear, deflation, they are spending less in this area all the time, so the keepers of the treasury will have to find other places to cut.

One public figure, however, feels that the goraku category hasn’t been scrutinized enough. The city assembly of Ono, Hyogo Prefecture, passed a law that went into effect April 1 prohibiting people who receive public assistance from the city to use that money for gambling. The law also compels city residents to report any instance of gambling by welfare recipients to the police. Given the timing of the implementation and the nature of the law, some people may wonder if it’s a joke, but Mayor Tsutomu Horai, who wrote it, is quite passionate about the matter, which is why the media have covered it so closely.

Ono currently pays out ¥290 million in welfare annually to 120 households. The population of the city is 50,000. The new law states that anyone who observes a welfare recipient spending “too much money” on gambling has a responsibility to report it to the authorities. The model seems to be local versions of child abuse prevention laws, which state that anyone who believes a child is the victim of violence or neglect must report the abuse to police.

The bill first became publicly known in February, before it was approved, and the city received some 7,000 “opinions” from all over Japan, 70 percent of which were positive. As Horai told the weekly magazine Aera at the time, “Let’s say your friend asks to borrow money because of some trouble, and then later you see him playing pachinko. Naturally, you’re going to be annoyed.”

The problem, as he saw it, was that most people don’t care about public money, and so he wants to change that perception. There is no penalty if a person sees a welfare recipient gambling and does not report it, probably because that would be impossible to prove. Horai certainly understands this, but claims that 90 percent of the city’s residents, including welfare recipients themselves, support the law and so most of his job is already done.

The Hyogo Prefecture Bar Association has come out against the law, saying that its purpose of involving average citizens in the monitoring of welfare recipients’ behavior will result in greater “discrimination of and bias toward” the latter. In fact, Ono’s finances are healthier than most local government’s. Its treasury actually reports a surplus balance of ¥8.5 billion, and the mayor himself has said that the aim of the law is not to reduce the welfare budget. If anything, he hopes the law will also alert people who may qualify for assistance to apply for it.

As it stands, the central government provides three-fourths of a typical handout with the remainder handled by municipalities. About 1.7 percent of the national population receives welfare, while the portion in Ono is only 0.3 percent. However, both statistics are on the rise — the number of recipients in Ono increased by 64 percent over the last five years — and is certainly a reflection of the economic situation in general, but Horai thinks that it has to do with a more relaxed attitude toward government handouts. He told Aera that he first thought of devising the bill when he was at city hall and overheard several people who were waiting on line for their welfare packets. One asked another, “Where are you going to play pachinko later?”

Horai focuses on pachinko, which, legally speaking, isn’t gambling. Players can only earn money by trading the excess balls they win for premiums in the pachinko parlors and then “selling” those premiums at specially established booths outside the premises. Though no one is fooled that this isn’t betting in practice, it’s gambling by legal loophole. What’s more, the off-site payment booths are regulated by the National Police Agency, so why doesn’t pachinko qualify as legal recreation, which is considered acceptable for welfare recipients? And why doesn’t Horai induce citizens to narc on welfare recipients who, say, buy lottery tickets?

Actually, he has an answer to those questions. “People say pachinko is merely entertainment,” he told Aera. “But they don’t understand reality. People who spend too much on pachinko are addicts.” In truth, he wants welfare recipients who play “too much” pachinko to seek medical help, which they can do easily since, as welfare recipients, their medical insurance is free. Horai’s system may not make much sense, but he wants you to know his heart is in the right place.

You can’t take it with you: Horse gambler’s system stymied by tax law

Wednesday, December 5th, 2012

People in Japan who win prizes through the lottery (takarakuji) do not have to pay taxes on their gains, even if they win hundreds of millions of yen. However, people who win money betting on horses or other racing sports are required to report those earnings on their income tax returns. Why the distinction? Is it a difference in approach? Though both are forms of gambling, which is strictly circumscribed, lotteries are purely matters of chance, while betting on the ponies can involve calculation and experience. Only the tiniest fraction of the population could make a “living” from the former, by essentially winning a jackpot once, while there is a small but dogged subculture whose members at least like to think they can profit continually at the track.

Poster commemorating Japan Racing Association’s 150th anniversary

One person recently found out just how limited such a livelihood can be. A 39-year-old salaryman, whom the media hasn’t named, was recently indicted in Osaka for tax evasion. The man’s lawyer has told the press that he makes ¥8 million a year at an unspecified job. He is married and has one child with another on the way.

In 2006 he started spending enormous amounts of money on horse racing based on the belief that he could make a profit over time. Using software that “predicts winners,” he would analyze the statistics for individual horses and then bet on multiple contestants in individual races through the internet. He would not bet on races with horses making their debut since there wasn’t enough data available, but almost anything else was acceptable.

The point was to bet as much as possible on as many “favorable” horses as he could, including combination tickets. He lost most races, but he made enough on winning bets to pool that money and then use it for the next series of races. This sort of continuous overkill methodology meant that in the long run his winnings grew exponentially. During the three-year period from 2007 to 2009, he bought ¥2.87 billion worth of tickets and received winnings of ¥3 billion, thus making a net profit of ¥140 million.

However, he didn’t report these earnings on his tax return and eventually was audited by the Osaka branch of the National Tax Bureau. The amount they cited him for was not the ¥140 million he netted, but rather ¥2.9 billion — the ¥3 billion he grossed minus an expenditure of ¥100 million. Thus his tax bill for the three years is a whopping ¥570 million, and with the added penalty it comes to a total of ¥690 million.

Continue reading about tax on revenue from gambling →

Place your bets: Local governments pray for a jackpot

Tuesday, July 10th, 2012

Take my money, please

Japan’s biggest-ever lottery offering went on sale July 9. The 2012 Summer Jumbo Takarakuji  has 26 grand prizes of ¥400 million each — tax free. The last Jumbo lottery was in February, with a top prize of ¥300 million, but in March the authority that oversees the contest increased the maximum possible prize from ¥300 million to eventually reach ¥750 million. The strategy is to gradually increase the amounts of the jackpots in order to boost sales on a continuing basis.

The authority is called the Zenkoku Jichi Takarakuji Jimu Kyogikai, or Zenkokukyo for short. It means, literally, national self-government lottery administration council, and is made up of finance section heads of prefectural governments and large cities. The headquarters are located in the Tokyo Metropolitan Government offices, which makes sense. More lottery tickets are sold in Tokyo than anywhere else.

According to research carried out by the Nihon Keizai Shimbun, ¥173 billion worth of lottery tickets were sold in Tokyo in 2007, meaning per capita sales were ¥14,278. The next largest sales amount was recorded by Osaka, with ¥98 billion. About 46 percent of nationwide revenue becomes prize money, with 40 percent going to prefectural and city governments, and the remainder is used for administrative and other costs. The amount that each local government receives is determined by how many tickets each has sold.

Continue reading about lottery jackpots →

Mahjong parlors go deeper underground to stay in business

Thursday, January 5th, 2012

As a disreputable pastime, mahjong doesn’t draw as much attention as racing sports or pachinko probably because as a game it’s relatively low key and whatever gambling goes on is between friends. In Japan, mahjong traditionally has been played by male college students and salarymen in smoke-filled “parlors” where participants rent tables by the hour and send out for food and alcohol. Like a lot of things that depend on disposable income, Japan’s mahjong industry has been hurting lately. Not only did the lingering recession eat away at the game’s clientele, but anyone with a mahjong jones can get their fix with computer and mobile phone applications. According to the National Mahjong Union, there were about 36,000 parlors nationwide in 1978, a number that remained fairly constant until the bubble burst at the end of the 1980s. By 2000, the number had dwindled to 20,000, and in 2010 there were only 12,700 mahjong parlors in Japan.

Against the wind: Entrance to mahjong parlor in Hama-cho, Tokyo

The Asahi Shimbun recently reported that many remaining parlors are desperately trying to attract new customers in order to stay in business and that some of these schemes have led to police crackdowns. The paper covered one struggling parlor in Osaka where it costs ¥1,800 to rent a four-person table for one hour, and most days the manager says they only manage to rent out about two tables. Another parlor in the vicinity has actually set up a no-smoking section behind glass in hopes that women and non-smokers will come. Still other parlors have set up bigger kitchens so as to offer a more diverse dining experience. There’s even a movement called “healthy mahjong” aimed at older and younger people that emphasizes daytime playing with no alcohol or betting, as well as the supposed brain-fortifying qualities of the game. Some parlors offer “classes” in how to play mahjong more enjoyably and effectively.

Traditional mahjong enthusiasts, however, will likely look askance at these developments, since without the drink and the smoke and the gambling mahjong holds little interest to them. The main problem is that a mahjong game requires four people, so some parlors have devised “free mahjong,” which means you can show up at a parlor by yourself and the manager will set you up in a game with employees. Instead of charging by the table and the hour, free mahjong parlors charge by the game., and since mahjong games can be relatively quick affairs, the profit rate is theoretically higher.

Continue reading about mahjong →

Pachinko parlors pulling in pensioners

Tuesday, November 9th, 2010

Has anybody seen grandpa?

Has anybody seen grandpa?

The pinball pastime known as pachinko reached its peak of popularity in 1995, when the industry raked in almost ¥30 trillion. Since then it’s been all downhill, owing mainly to population shrinkage and the attendant loss of disposable income. However, the biggest blow to pachinko revenues came in 2007 with stricter regulations for slot machines (or “pachislot“), which were a little too much like gambling as far as the National Police Agency was concerned. This may be a matter of splitting hairs since standard pachinko is also a form of gambling that can be quite addictive, but in any case more and more pachinko parlors have gone out of business in the three years since. There are now about 12,600 parlors throughout Japan, 2,000 less than there were in 2007 and 30 percent less than there were in 1995.

Slot machines were more popular among younger pachinko enthusiasts, and rather than try to reclaim what will likely be a dwindling demographic, the industry has gone in the opposite direction. Since 2008 pachinko parlors have targeted the elderly, with surprising success. Between 2000 and 2008, the number of pachinko users over the age of 60 grew from about 2 million to 3 million; but in the subsequent two years the number jumped to 4.3 million.

Continue reading about pachinko and pensioners →

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