An industry operating facilities in the Philippines, employing mostly aliens instead of Filipinos, and generating hundreds of billions of pesos in profit, should be subject to Philippine taxes.

The proliferation of the so-called Philippine offshore gaming operators (POGO) in the country has confirmed the status of the Philippines as the new and emerging gambling capital of Southeast Asia. These POGO are all over the country, and many hotels and similar establishments in the nation are not considered “top of the line” if they do not host a POGO facility.

Gambling was considered a social curse during the martial law period in the Philippines. Only one casino operated in Metropolitan Manila and admission was strictly limited to foreign tourists. Casinos proliferated in the country only after the martial law period, beginning with the administration of President Corazon Aquino.

The emerging POGO industry in the Philippines consists of local service providers that handle online gambling facilities which accept online wagers or bets from registered subscribers abroad, mostly from mainland China where gambling is outlawed. This controversial industry generates an income of about P200 billion.

Albay Rep. Joey Salceda revealed in a recent television interview that although there are 60 licensed POGO operating in the country, another 100 are conducting business illegally. Salceda said 88 percent of the POGO are owned by mainland Chinese, and almost all POGO employees are Chinese nationals.

Salceda wants the POGO to pay taxes, and urges the Philippine Amusement and Gaming Corporation not to issue licenses to tax-evading POGO. Even the Department of Finance is considering increasing taxes to be paid by the POGO.

Solicitor General Jose Calida expressed a different view a few days ago. He says the POGO industry operating in the Philippines is not subject to Philippine taxes.

According to Calida, the POGO cannot be taxed based on the “source of income” principle under the country’s tax code. Calida said the test of taxability “is the source and correspondingly, the source of an income is that activity which produced the income.” He added that an offshore gaming operator, even one that employs a Philippine-based service provider, earns “from bets placed by its registered foreign subscribers.”

Clarifying further, Calida said, “Ultimately, an offshore-based operator’s income is the placement of bets on its online betting facility — which are derived from sources outside the Philippines.”

Ordinarily, one would think that an industry operating facilities in the Philippines, employing mostly aliens instead of Filipinos, and generating hundreds of billions of pesos in profit, should be subject to Philippine taxes, as everyone else living or sojourning in the country is. That obligation to pay taxes becomes more pronounced when one considers that the industry concerned is about a socially objectionable activity — gambling.

At any rate, the reason given by Calida is legally untenable.

The profits of the POGO emanate from wagers lost by bettors using the online facilities provided by the POGO. Without those online facilities, wagers cannot be made, bets cannot be lost, and profits cannot be made by the POGO.

An online betting facility like the ones used by POGO can easily be operated and made accessible to bettors in mainland China. The problem is, the communist government in Beijing outlaws gambling in any form, including online gambling. Therefore, as long as mainland Chinese laws prohibit online gambling, online betting facilities cannot be operated in mainland China. Those facilities will have to be operated elsewhere, if they are to attract wagers and generate income.

This is where the Philippine-based service providers come in. Without a Philippine host for a POGO’s online gambling facility, wagers cannot be placed and lost, and online gambling profits cannot be realized, even if the supposed online wager was made outside of the Philippines.

In other words, the profits realized by the POGO depend considerably on their operations in the Philippines. Being so, POGO operations should be subject to Philippine taxes.

The jurisprudence on taxation provides that tax exemptions are frowned upon, and that laws are construed strictly in favor of the State and against the taxpayer.

Accordingly, between two constructions, one in favor of the taxing power of the State and another holding otherwise, the construction in favor of the taxing power must be upheld.

Exempting POGO from Philippine taxes is also an insult to Philippine sovereignty.