Taxes and POGO

Published in Daily Tribune on October 21, 2021
by: Juan Romulo R. Taleon

On 22 September 2021, President Rodrigo Duterte signed RA 11590, otherwise known as “An Act Taxing Philippine Offshore Gaming Operations (POGO), amending sections 22, 25, 27, 28, 106, 108 of, and adding new Sections 125-A and 288(G) to the National Internal Revenue Code (NIRC) of 1997, as amended.”

The law involves five parts. The first part, Sec. 2 amending Sec. 22 of the NIRC, defines an “offshore gaming licensee” as an offshore gaming operator which must be duly licensed and authorized, through a gaming license, by the Philippine Amusement and Gaming Corporation (PAGCOR) or any special economic zone authority or tourism zone authority or Freeport authority to conduct offshore gaming operations, including the acceptance of bets from offshore customers. It also adds the term “offshore gaming licensee-gaming agent” which is the representative in the Philippines of an offshore-based operator appointed to receive summons, notices, and other legal processes for the offshore gaming licensee, and to comply with the disclosure requirements of the Securities and Exchange Commission. The proviso ends by directing that, although the agent will act as the licensee’s representative, he must not be involved with the business operations of the offshore gaming licensee, and shall derive no income therefrom.

The second part, Sec. 3 amending Section 25 of the NIRC subsection (G), recognizes and enumerates the requirements for being Alien Individuals Employed by an Offshore Gaming Licensee and Service Providers and provides for their tax liability. Such individuals shall pay a final withholding tax of 25 percent on their gross income. It also stipulates that the minimum final withholding tax due for any taxable month from said persons shall not be lower than P12,500 and the licensees and service providers shall submit to the Bureau of Internal Revenue the original copy of the notarized contract of employment clearly stating therein the annual salary and other benefits and entitlements of the alien involved.

The failure to remit this withholding tax will make the licensee liable under the tax code and expose the alien concerned to deportation and be barred from re-entering the Philippines, or blacklisted as a foreign employee by the DoLE, BoI, and other relevant agencies.

It is also mandatory for all foreign employees of offshore gaming licensees and their respective service providers to obtain a tax identification number. The failure to secure one will make the offshore gaming licensees and service providers liable for a fine, revocation of license, and/or perpetual or temporary ban in employing or engaging foreign nationals for their operations.

Additionally, the foreign national shall still pay, and the employer shall remit, any corresponding taxes, penalties, interests, and surcharges due in accordance with the NIRC.

The third part of the subject law talks provides the tax rates on Offshore Gaming Licensees for revenues derived. Section 4 of the law amended Sec. 27 of the NIRC by adding:

“F” as Offshore Gaming Licensees and indicating thereon the “non-gaming revenues” of Philippine-based offshore gaming licensees as duly licensed by the PAGCOR or any economic, tourism, and Freeport authority shall be subject to an income tax equivalent to 25 percent of the taxable income derived during each taxable year from all sources within and without the Philippines.

Sec. 5 of the law amended Sec. 28 of the Tax Code and now subjects the Offshore Gaming Licensee to an income tax equivalent to twenty-five percent (25 percent) of the taxable income derived during each taxable year. It also states that, while Accredited service providers to offshore gaming licensees will not be subject to gaming tax, they will still be liable for all other local and national taxes.

Sec. 8 of the law added a new section designated as Section 125-A of the tax code which specifically provides for the collection of a gaming tax equivalent to 5 percent of the entire gross gaming revenue or receipts or the agreed predetermined minimum monthly revenue or receipts from gaming, whichever is higher. It also gives the PAGCOR or any special economic zone authority to impose regulatory fees on offshore gaming licensees which shall not cumulatively exceed two percent of the gross gaming revenue or receipts from gaming operations.

With all these revenues and taxes being imposed, these Offshore Gaming Licensees must not be discouraged from doing business. Hence, Secs. 6 and 7 RA 11590, amending Secs. 106 and 108 of the NIRC respectively, imposed a zero percent VAT rate for the sale of Goods or Properties and the Sale of Services and Use or Lease of Properties to offshore gaming licensees which are already subject to gaming tax which also includes the accredited service providers.

The last and final part talks about the disposition of Revenues from Gaming Tax on Offshore Gaming licensees by amending Sec. 288(G) of the National Internal Revenue Code of 1997 under Sec. 9 of RA 11590.

Sixty percent of the total revenue collected from the gaming tax is reserved for use in the implementation of RA 11223 or the Universal Health Care Act; 20 percent shall be allocated to the Health Facilities Enhancement Program; and, 20 percent shall be allocated for the attainment of the Sustainable Development Goals (SDG) and such shall be determined by the National Economic and Development Authority.

With the Philippines projecting the collection of billions in tax revenues from these POGO, and the economy on the brink of recovery, the government must prioritize the execution of this law as soon as possible to not only help but also address budgetary needs to better protect the people and the economy from the devastation caused by this Covid-19 pandemic.