Taxing POGO

The Bureau of Internal Revenue was called out to see if these entities are being taxed properly.

It is no secret that the 18th Congress has been bent on pushing for the administration’s priority tax measures. Before you know it, the House of Representatives has passed the Department of Finance’s tax packages in lightning speed. Packages 2 (CITIRA), 2+ on Sin Taxes and 4 (PIFITA) has been approved on Third and Final Reading, while Packages 2+ on Mining Taxes and 3 (Real Property Valuation) has been taken up in the House Committee on Ways and Means. Yet another tax measure is picking up speed despite not being in the Administration’s list.

The Philippine offshore gaming operator (POGO) phenomenon has caught the public eye, evidently with the increasing number of Chinese mainlanders plying the street of Manila, plucking up condominium units to effectively jack up lease prices and the several Chinese-lettered restaurants that we would not dare enter.

Recent data shows there are around 100,000 documented Chinese mainlanders working for POGO, but it appears there are more than double that. Their sudden arrival, at such a fast pace, tells us that the government might be missing out and that even the assigned regulators are incapable of controlling it by themselves, requiring Congressional action to kick in.

The arrival of POGO was treated as good news, initially, until reports on prostitution dens and crimes committed by and against Chinese mainlanders against each other began cropping up. Some Chinese folk were killed over alleged debts, and hotels rented out to be nightclubs filled with Chinese prostitutes became targets of local authorities. The Bureau of Internal Revenue was called out to see if these entities are being taxed properly. Given the extravagant lifestyles these POGO operators have been living, and the buildings they’ve been purchasing at a whim, the answer is probably not.

House Committee on Ways and Means chairman Rep. Joey Sarte Salceda is a seasoned economist, quick to act on this. He filed House Bill 5267 which seeks to tax those engaged in POGO through amendments to the National Internal Revenue Code of 1997, particularly Sections 22, 25 and 119.

The amendment of Section 22 provides for the definition of Offshore Gaming Licensee (OGL), which shall refer to an offshore gaming operator duly licensed and authorized to provide offshore gaming services. This OGL may either be (1) Philippine-Based Operator, a duly constituted business enterprise organized in the Philippines, or (2) Offshore-Based Operator, a duly constituted business enterprise organized in any foreign country, which will engage the services of the Philippine Amusement Gaming Corporation (PAGCOR)-Accredited Service Provider or Support Provider or any Special Economic Zone Authority and tourism authorities. Moreover, an OGL shall be considered engaged in doing business in the Philippines.

Meanwhile, the amendment to Section 25 provides that an alien individual who is a permanent resident of a foreign country and is employed and assigned in the Philippines by an OGL shall pay a tax of 25 percent of the salaries, wages, annuities, compensation, remuneration and other emoluments such as honoraria and allowances received from such licensee.

Lastly, the amendment to Section 119, entitled “Tax on Franchise,” provides that there shall be a tax of five percent on all offshore gaming companies on gross receipts derived from gaming operations covered by the law granting the franchise.

Hearings have been held by the Committee on Ways and Means to hasten its approval. In a hearing held last 11 November, Rep. Sharon Garin (Partylist, AAMBIS-OWA) highlighted that proper taxation of the POGO industry stands to bring an economic boom to the Philippines, as it is expected be a $60-billion industry.

In a more recent hearing on Monday, 18 November, Cagayan Economic Zone Authority administrator and chief executive officer Atty. Raul Lambino, and PAGCOR policy development senior manager Jessa Mariz Fernandez, both expressed support for the bill. On Tuesday, presidential spokesman Salvador Panelo faced media echoing stance of Malacañang that POGO must be taxed correctly.

At this rate, we can expect HB 5267 to be passed on Third and Final Reading by the end of the year, and for the Senate to begin its hearings early 2020. It can be sent to the President’s desk for signing before Congress goes into recess in April.

Will its passage be detrimental to the growth of POGO? This writer certainly does not think so. POGO are this administration’s version of call centers, which proliferated in the Aquino Administration. Look around today and call centers are still around, popping up left and right in Metro Manila and the provinces. The passage of this bill will give recognition and credence of POGO, and allow it to flourish as a legitimate and credible business industry.

E-mail: darren.dejesus@abogados.ph or tweet @darrendejesus.