The absence of a clear policy or legislation has sparked a debate over whether or not operations of Philippine offshore gaming operators (POGOs) should be taxed.
For the Department of Finance (DOF), there is no ambiguity as far as the Bureau of Internal Revenue (BIR) is concerned that POGOs are covered by Philippine tax regulations.
The DOF cited a BIR provision that states that the situs or place of income is where the services are rendered.
Carlos Dominguez, DOF secretary, told reporters in a Viber message yesterday the primary jurisdiction to interpret the Tax Code provisions lies with the BIR.
“The BIR issued an opinion to this effect months ago saying that the situs of income is where the services are rendered. Thus, since POGOs are providing services to their counterparts in the Philippines, they are subject to income tax. The same is true for VAT (value-added tax), which also is imposed on services rendered in the Philippines,” Dominguez said.
According to BIR’s revenue memorandum circular (RMC) no. 102-2017, POGO taxpayers are classified as those duly licensed and authorized by the Philippine Amusement and Gaming Corp. (Pagcor) to provide offshore gaming services, whether these operators may be Philippine-based or offshore-based, with the latter being an enterprise organized in a foreign country, who will engage the services of a Pagcor-accredited service/support provider for its online gaming activity.
POGO taxpayers in the Philippines, as per the BIR, also included other entities, such as POGO-gaming agents, service providers, and gaming support providers.
Dominguez’s message was in response to a report which said that according to the Office of the Solicitor General (OSG), POGOs are not subject to Philippine tax.
Andrea Domingo, Pagcor chairperson, however said the OSG’s opinion prevails unless a clear measure is passed into law.
“In absence of any clear law covering the taxability of the income of the offshore-based POGO operators, then the opinion of the OSG would be prevailing,” Domingo said in a statement to reporters.
“If congress passes a law clearly providing for the tax accountabilities of POGO operators, then we should abide by it as it is the law,” she added.
Lawmakers however, like Dominguez, said these POGOs should be taxed.
Franklin Drilon, Senate minority leader, in a statement yesterday, disputed the opinion rendered by the OSG, warning that such a “misplaced and misguided” opinion may “open a can of worms” in the country’s tax system.
In the first place, Drilon said, it should be the BIR which will decide on the matter and secondly, POGOs are clearly taxable as they are operating in the country.
“Pursuant to the National Internal Revenue Code, the power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the commissioner, subject to review by the secretary of finance,” Drilon said.
“If that is the theory (that POGOs cannot be taxed), how can we permanently close the POGOs which were ordered closed due to non-payment of taxes. Second, the employees of POGOs are subject to taxation, but the operators are exempted from taxes. Isn’t it conflicting?” Drilon said in Filipino.
Under Section 42 of the National Revenue Code, Drilon said the government can derive income from compensation for labor or personal services performed in the Philippines.
“POGOs provide a service and the service is completed in the Philippines since all the betting occurs and is completed in the Philippines,” Drilon said.
“It is clear that the whole activity is conducted in the Philippines and, therefore, is subject to the jurisdiction of the Philippines. Because if you say otherwise, then PAGCOR would have no authority over them,” he added.
Albay Rep. Joey Salceda also bucked the position of the OSG that POGOs are not subject to Philippine taxes because its income is from activities undertaken abroad.
Salceda said that while the bets are made by people outside the Philippines, “it is enabled by manpower and facilities inside the Philippines.”
“So, there is value-added or income derived here therefore taxable. Basic accounting principle – costs are recognized when revenues are recognized. So aren’t the wages here costs expensed by POGOs,” he said.
Out of 60 POGOs in the countries, only 10 are registered with the BIR, the ways and means chair pointed out.
“So, therefore should not the 50 registered and the 100 illegal POGOs be of similar stature?. Moreover, OSG interpretation rises to the level of a tax exemption, the grant of which is intrinsically the duty of Congress,” Salceda said.
Meanwhile, the House committee on ways and means approved a bill which seeks to impose additional taxes on POGOs and its foreign workers, who are mostly Chinese, in the country.
The panel chaired by Salceda approved House Bill No. 5267 imposing a five percent franchise tax on POGOs and 25 percent income tax on the salaries of foreign employees with a minimum threshold of P600,000 annually.
“The exigent issue is Pagcor merely charges two percent regulatory fee on POGOs instead of five percent franchise tax in lieu of other taxes,” Salceda told reporters.
Salceda said the government collects some P6 to P8 billion a year from the two percent tax, and the additional taxes would allow the government to collected P20 billion from the franchise tax.
He said his bill aims to collect a total of P45 billion in additional revenues for the government, with Pagcor being the lead agency tasked to collect the taxes.
Salceda, in the bill’s explanatory note, said the taxability of POGOs should be determined given their proliferation in recent years.
“While the BIR has issued RMC No. 102-2017 which clarified the tax treatment for these facilities and associated services, a law that settles questions of taxability, through amendments in the National Revenue Code, will once and for all address confusion on the taxation of this emerging industry,” he said.
“Codifying the tax regime for POGOs will provide the government a broader set of levers with which to monitor and oversee the industry and to stabilize the gyrations in tax revenue intake and enforcement,” he added. (With R. Africa and W. Vigilia)