Photo/IllutrationA graduate of the Japan Casino School shows off her roulette skills on a training table in Osaka. (Asahi Shimbun file photo)

Chinese and Indian gamblers may have to pay income tax on their winnings at casinos in Japan, while those from the United States and South Korea could get a “free pass” here.

And anyone who enters a Japanese casino could be strictly monitored to prevent money laundering.

These possibilities have come up during discussions on the international intricacies of the government’s plan to develop casinos.

The government has stated in the Diet that profits from gambling, in general, should be regarded as “occasional income” and subject to income tax.

But how will tax authorities handle gamblers of different nationalities?

Overseas tourists who gamble at Japanese casinos could be subject to the tax treaty their home country has signed with Japan. As of March, Japan had treaties with 123 states and regions.

According to the National Tax Agency, Japan’s treaties with the United States, European nations, South Korea, members of the Organization for Economic Cooperation and Development (OECD) and others stipulate that foreign visitors should pay tax on profits at casinos to the governments of their own countries.

On the other hand, Japan’s tax treaties with China, India, Singapore and other countries allow Japan to charge income tax on sightseers who win at casinos.

People from countries that have not signed tax treaties with Japan are supposed to be subject to Japan’s income tax, just like Japanese citizens.

Overseas taxation systems concerning casinos are also complicated.

According to the Finance Ministry, casino visitors from both inside and outside the United States are, in principle, liable for income taxation in America. However, foreigners can be dealt with in different ways, depending on tax treaties between the United States and their home countries.

In Singapore and Macao, all gamblers, including those from abroad, are exempted from taxation, ministry officials said.

The challenges facing Tokyo are how to monitor foreign tourists’ incomes, how to collect taxes from them, and whether treating people of different nationalities in differing manners is the way to go.

Another problem is how to ensure that gamblers are not using the casinos to launder vast amounts of money.

Visitors exchange cash for chips at casinos, creating a mechanism that can be used to process illegally obtained money and conceal the origin of the funds.

In 2012, the Financial Action Task Force (FATF), an international group that monitors money-laundering operations and other crimes, recommended that Japan and other member nations ensure transaction records are kept for five years when casino operators exchange chips for a certain amount of cash.

The FATF also said casinos should report suspicious transactions to authorities.

The government’s expert panel on the promotion of integrated resorts (IRs), including casinos, designed the IR implementation bill and pointed out the “high risk of money laundering” in the planned casinos.

The panel proposed not only that the government follow the FATF recommendations but also that electronic tags be embedded in the gambling chips to prevent bettors from exchanging the tokens or removing them from the casinos.

Lawyer Takeshi Nakamura, a member of the Japan Federation of Bar Associations’ working group on the casino and gambling issue, said crime syndicates launder illicitly obtained money at overseas casinos. The gangsters make the transactions at levels slightly lower than those at which casino operators need to report to relevant authorities.

“Effective anti-money-laundering measures, such as a system to carefully monitor customers’ every move to identify those who win or bet in unordinary manners, should be introduced,” Nakamura said.

(This article was written by Yoichiro Kodera and Yuta Hanano.)