IF lawmakers want to halt the exodus of foreign-based gaming firms, a senior lawmaker on Thursday said Congress may have to work with the Philippine Amusement and Gaming Corp. (Pagcor) in conducting an early review of the law taxing Philippine Offshore Gaming Operators (POGOs).
Camarines Sur Rep. Lray Villafuerte said an early review of POGO law will enable the Marcos administration to raise more cash for its priority programs from this once booming online enterprise.
At the hearing of the House Committee on Appropriations, Villafuerte said Pagcor admitted that the high tax regime for POGOs under RA 11590 has led to the regulator’s lower revenue take from this sector, as half of the registered licensees have already shut down or left the country and transferred to new host-countries with less prohibitive taxes like Cambodia, Vietnam and the United Arab Emirates (UAE).
“With the new government in need of much bigger revenue streams to adequately fund its priority social welfare programs, among others, Congress may have to engage the Pagcor in an early revisit of the POGO law to find out if rationalizing the tax rates or offering additional incentives are necessary to prevent the remaining POGOs from leaving and enticing those that have left since RA (Republic Act) 11590 took effect to return to our country,” Villafuerte said.
Villafuerte noted that since half of Pagcor’s gaming revenues are remitted to the national government, a bigger revenue take—from sources like POGOs—will naturally let the Marcos administration spend more on its nation-building programs, particularly those uplifting the lives of marginalized sectors.
“We may have to take stock of RA 11590 and possibly introduce amendments that could put a stopper to the exodus of POGOs and, hopefully, lure back those that have left and attract other online gaming firms currently based elsewhere,” he said, “as a potentially dramatic increase in revenues from Pagcor’s once booming sector would go a long way in helping the Marcos administration set aside a lot more funds for its priority programs like social safety nets for the poor and marginalized.”
Villafuerte, the president of the National Unity Party (NUP), said that with “a larger revenue take, particularly from the lucrative online gaming, the government could, for example, provide adequate funds for its planned social safety nets, such as the higher monthly pension for senior citizens, the cash aid for solo parents and the Libreng Sakay free bus rides along EDSA.”
The former CamSur governor said RA 11590 signed by then-President Duterte imposed offshore licensees a 5-percent gaming tax based on gross gaming revenue (in lieu of all other direct and indirect national and local taxes); a 25-percent non-gaming income tax on all taxable revenue sources in and out of the Philippines if the licensee is based here, or 25-percent non-gaming tax on taxable income derived from the Philippines only, if the licensee is based abroad; and a 2-percent tax on their gross revenues as regulatory fees.
Moreover, the law imposed a 25-percent final withholding tax (FWT) on these POGOs’ foreign employees assigned to the Philippines, and a 0-35 percent graduated individual income tax on these aliens for any income earned from all other sources in the Philippines; and regular income tax on the net taxable income of these POGOs’ service providers.
As defined by RA 11590, offshore licensees are overseas gaming operators duly licensed by the Pagco—or any special economic zone (SEZ) or freeport or tourism zone agency or tourism zon—to do offshore gaming operations and accept bets from bettors outside the Philippines.
Pagcor reported that from P73.72 million in 2016, government income from its regulatory fees alone collected from POGOs went up to P3.12 billion in 2017, P6.11 billion in 2018, and P5.73 billion in 2019. In the first quarter of 2020, POGOs already paid P1.80 billion in regulatory fees alone.
Collections from POGO applications, processing and regulatory fees reached a total P20.83 billion from 2016 to March 2020, said Pagcor.
‘Marites-driven policymaking’
House Committee on Ways and Means Chairman Joey Sarte Salceda, meanwhile, slammed Pagcor’s statement blaming the POGO tax regime for low tax collections from offshore gaming.
Salceda, the principal author of the law, said “blaming a tax law that was only fully implemented in December 2021 for low tax collections, when all evidence points to a POGO revival by the later quarters is bizarre to say the least.”
“I can’t believe that people will use one quarter of performance of a tax law as the basis for amendments. Doesn’t that look a little too agenda-driven rather than evidence-driven? It’s Marites-driven policymaking,” Salceda said.
Salceda also pointed to property market data which shows that offshore gaming is due for a recovery in the succeeding quarters of the year.
“According to property market expert Leechiu Consultants, there were 21,000 square meters of new POGO office space leased by around Q2 of 2022. That means the POGOs have adjusted to our laws already, and they are now more comfortable with our regulatory regime. That’s what regulatory certainty does,” Salceda said.
“And because they are now taxed fairly, they are regulated well, and we imposed transparency standards on the sector, they are no longer stigmatized as much. Because of that, office leases for POGOs are up starting May, and we will likely see the tax consequence of that development by Q2 or Q3 of this year,” he added.
On the other hand, Salceda said that a look at the POGO transactions for office space at the height of Covid-19 from Q2 2020 to Q4 2022 shows “that almost zero new office space was leased by POGOs. That should explain revenue performance. So that’s the cause, not RA 11590, which gave them more solid footing.”
Citing BIR Commissioner Lilia Guillermo, the lawmaker said the bureau is seeing POGO tax revenues pick up.
‘Obnoxious tax rate’
Salceda said RA 11590 “corrected an unfair and obnoxious tax rate which was suddenly inserted in Bayanihan 2 without prior consideration of the Committee on Ways and Means, and which was correctly assailed as constitutionally impaired.”
“And what happened during those dates when no POGO was leasing any office space? One, of course the pandemic slowed down the market, especially since China adopted very stringent lockdowns. Two, in Bayanihan 2, some legislators inserted a provision that taxed POGOs at 5 percent of gross bets, which are not sales, instead of 5 percent of revenues. The Bayanihan 2 POGO tax was going to tax them 20 times the standard tax rate for casinos. So, that insertion was deemed egregious and was eventually halted by the Supreme Court,” he added.
“And mind you, that insertion did not pass through my Committee, the Committee on Ways and Means, where tax policy is constitutionally mandated to originate. So, there are legitimate concerns about the constitutionality of that insertion,” he added.