Overdue tax measure

Online gambling seemed to plunge as quickly as it boomed in the Philippines after Pogos (Philippine offshore gaming operators) came under criticism for billions of unpaid taxes and the crimes that attended the sector’s explosion—money laundering, illegal drugs, kidnapping, prostitution, corruption in government agencies handling their affairs, etc.

But it was the COVID-19 pandemic that lowered the boom on the industry, with the travel ban since last year restricting the movement of the mostly Chinese gaming workers and forcing many of them to head home to China, leaving the real estate market with huge chunks of suddenly vacant office and residential space as a number of Pogos and their service providers closed shop.

But, since the government is in dire need of revenues to finance mounting expenses caused by the pandemic, it wants to take advantage of the revenue-

generating opportunity presented by the Pogo industry, or what remains of it in the country. President Duterte last month certified as urgent a Senate bill defining the tax policy on Pogos, not only to place the industry under stricter regulatory oversight but also to generate funds for government coffers.

Under Senate Bill No. 2232 (An Act Taxing Philippine Offshore Gaming Operations), all offshore gaming licensees, regardless of whether they are based in the Philippines or abroad, would be considered doing business here and must pay a 5-percent gaming tax on gross revenues or receipts. Foreigners employed by these licensees and service providers would also be subjected to a 25-percent withholding tax.

The measure provides a minimum final withholding tax of P12,500 per employee for each taxable month to avoid income tax evasion. The Senate approved on third and final reading the measure last week, while the House of Representatives passed a similar measure in February this year.

The government estimates it can collect P28.7 billion in revenues this year if the bill is enacted into law. “If we were to combine the 5-percent gaming tax on Pogos and the 25-percent withholding tax on the employees, for 2021, it’s a P28.7-billion projection. And then for 2022, it’s P32 billion,” said Senate ways and means committee chair Sen. Pia Cayetano.

She earlier cited BIR data showing that Pogo collections in 2020 amounted to only P7.18 billion, or 11.71-percent higher than the P6.42 billion in 2019. Considering the proliferation of Pogos in the country prior to the pandemic, the revenues should have been much bigger. Cayetano noted that the government could have received more than P38 billion in 2019 alone, a far cry from the amount the BIR got.

The new tax policy may seem to be a case of “better late than never.” Without giving details, Bureau of Internal Revenue deputy commissioner Arnel Guballa told the Inquirer that while the BIR was conscientiously collecting the tax obligations of Pogos, their service providers, and employees, actual collections have been lower compared to before the pandemic because many Pogos have left or are leaving the country.

As of May 17, 2021, the state-run Philippine Amusement and Gaming Corp. (Pagcor), which regulates the Pogo industry, had 55 registered operators in its list, down from 60 at the start of last year. However, among the licensed Pogos, only 31 had been issued authorization to resume operations in the wake of pandemic-related restrictions.

Pagcor also admitted that a number of Pogos closed down and left the Philippines due to problems with taxation. The Pogos had contested a BIR ruling requiring them to pay a 5-percent franchise tax, which they claimed covered only gaming operators located in the country.

Before that, amid calls by various sectors to tax the burgeoning industry, Solicitor General Jose Calida had sided with the Pogos in November 2019, opining that they were not subject to Philippine tax because their income “derived from sources without (outside) the Philippines.” The income reportedly already being generated by Pogos then was more than P200 billion.

The social costs to the country of hosting online gambling, which remains banned in mainland China, have been enormous and wide-ranging, from Filipinos being kicked out of rented condominium units or homes due to jacked-up rent bids by Pogo workers or their handlers, to criminal activities such as bribery of immigration officials, money laundering, tax evasion, and online fraud.

Still, Mr. Duterte has insisted that the sector be given leeway and allowed to grow in the country primarily as a ready source of revenue for the government. That imperative has become even more acute now with the ever-rising costs of the pandemic response, and so, despite many of the horses having bolted the barn door, so to speak, the Pogos remaining will henceforth be subjected to greater oversight and taxation—assuming the bill passes. It should, because this corrective measure is long overdue.