POGOs are Taxable
By Atty. Irwin C. Nidea Jr.
Everybody cannot help but notice the sudden influx of Chinese nationals in the country. My barber is happy since his business is doing good. He has more hair to trim. Condominium owners are enjoying an easy return of their investments. They are paid in cash for a one-year rent. Resort owners encourage their staff to learn mandarin because more of “them” are coming.
This is the result of our country’s open-door policy on Philippine Offshore Gaming Operators. What is the business of Pogo and why are they mostly coming from China? Since China bans gambling, the Pogo operators are skirting this prohibition by going to our country—establish a hub where Chinese individuals may place their bets. Pogo employs Chinese nationals primarily because they can speak the necessary language.
A recent news report caught my eye. It says that Pogos cannot be taxed because the bettors, who are the source of the income, are in China. Despite the money that Pogos earn by operating in the country, are we really going to admit and submit that everything that they are earning here is for free?
This problem is not new for the Bureau of Internal Revenue. As early as 2017 and 2018, the BIR has already issued circulars (Revenue Memorandum Circular 102-2017 and RMC 78-2018) to address this. The BIR imposes tax on the income of a Pogo from gaming operations and from other services, shows and entertainment necessary and related to its gaming operations. The BIR also classified Pogos as resident foreign corporations “doing business in the Philippines.” Generally, a resident foreign corporation that is doing business in the Philippines is subject to 30-percent income tax and 12-percent value-added tax. But as they say, in every rule, there is an exception. The Philippine Amusement and Gaming Corp. (Pagcor) has the power to issue a license and define the terms thereof, including the tax that will be paid by a
gaming operator.
"The question that we should be asking is not whether Pogos are taxable. What we should be asking is, are we satisfied with the 5-percent franchise tax, in lieu of all kinds of taxes, levies, fees, or assessments of any kind, nature or description that they are paying? This is a policy issue that our leaders must decide upon."
Pagcor deemed it proper that the entire gross gaming receipts/earnings or the agreed minimum monthly revenues from gaming operations of Pogos, whichever is higher, shall only be subject to 5-percent franchise tax in lieu of all kinds of taxes, fees or assessments. In other words, the 5-percent franchise tax covers all taxes that is due from gaming operations. But income from services necessary and related to gaming operations, i.e., shows, entertainment, etc., is the only thing subject to the normal income tax, VAT and other applicable taxes.
This begs the question, are Pogos taxable? The BIR and Pagcor are clearly saying yes. But the BIR’s hands are tied to impose the full 30-percent income tax and 12-percent value-added tax. Pogos have an agreement with Pagcor that they will only be paying 5-percent franchise tax from their gaming operations, in lieu of all other taxes.
Jurisprudence supports the argument that Pogos are taxable because they are doing business in the Philippines. In Commissioner of Internal Revenue v. British Overseas Airways Corp. (GR L-65773-74, April 30, 1987), the Supreme Court defined the term “doing business” in this manner: “In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character.” The operation of Pogos requires a certain continuity or regularity of business operation. They have established “hubs” where hundreds if not thousands of Chinese nationals are employed and housed. Their business is continuous and regular.
The question that we should be asking is not whether Pogos are taxable. What we should be asking is, are we satisfied with the 5-percent franchise tax, in lieu of all kinds of taxes, levies, fees, or assessments of any kind, nature or description that they are paying? This is a policy issue that our leaders must decide upon.
My barber might not be happy if he will have fewer hair to trim, but he will understand if it means that the country will receive its fair share.
The author is a senior partner of Du-Baladad and Associates Law Offices, a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at This email address is being protected from spambots. You need JavaScript enabled to view it. or call 8403-2001 local 330.