Press Release
May 25, 2021

On the bill taxing POGOs
Committee Report No. 262 on Senate Bill No. 2232 (as delivered)

By Senator Pia S. Cayetano
Chairperson, Senate Committee on Ways and Means

Mr. President and distinguished colleagues, today, I rise to sponsor and seek your support for Senate Bill No. 2232, per Committee Report No. 262, which establishes the tax regime of Philippine Offshore Gaming Operators, otherwise known as POGOs.

These online gaming facilities have become a growing industry in the Philippines, generating additional revenues for the national government in the past year. According to the BIR, POGO collections in 2020 amounted to P7.18 billion, which is 11.71% higher than the P6.42 billion collection in 2019 of the same industry.

But considering the proliferation of POGOs in the country in recent years, the potential of this industry as a source of revenue for the government could have been much bigger. In fact, during our hearing, it was estimated that the government could have collected more than P38 billion in 2019 alone, a far cry from the actual collection of the BIR.

The reason for this is because at present, nowhere under the National Internal Revenue Code, otherwise known as the NIRC, as amended, can we find explicit tax provisions pertaining to offshore gaming licensees, including gaming operators, gaming agents, and service providers.

POGOs only started being regulated and taxed when the Philippine Amusement and Gaming Corporation, otherwise known as PAGCOR, provided the Rules and Regulations for POGOs on September 1, 2016 and, afterwards, the BIR issued Memorandum Circular (RMC) 102-2017 on Taxation of POGOs. Likewise, RA 11494 or the Bayanihan to Recover as One, otherwise known as Bayanihan 2, mandated that POGOs shall be taxed with a 5% franchise tax on gross bets or turnovers.

Unfortunately, these taxation and other regulations did not push forward, due to the Supreme Court's recent decision to issue a Temporary Restraining Order (TRO) on the said relevant provisions of Bayanihan 2, together with the other BIR revenue regulations and circulars concerning POGOs.

Hence, the long-standing questions about the tax obligations of POGOs conducting business in our country remain unanswered and unaddressed, which means billions worth of revenue losses for our government.

Having said these, it is high time that we clarify and establish the taxation regime of offshore gaming licensees, including gaming operators, gaming agents, service providers, and gaming support providers, and incorporate these entities in the Philippine taxation system.

Mr. President and my dear colleagues, as your Chair of the Senate Ways and Means Committee, we have reviewed the various bills, listened to government agencies, industries and other stakeholders. I believe that legislating the tax regime of the POGOs and incorporating the same to the NIRC is a step towards the right direction.

It will not only plug the loopholes in our country's tax code that led to issues of confusion surrounding the operation of POGOs, but it will also prevent similar issues in the future, which could gravely undermine our government's power to impose and collect the right taxes.

By addressing these gaps in our tax system, we can maximize the POGO industry's potential as a revenue source. In turn, we will have more resources in our country's coffers to fund programs that will improve people's lives and help us build back better following this global health and economic crisis.

On this note, our proposed measure seeks to address the following issues on POGO taxation:

Taxability of POGO Licensees: POGO Offshore-based Licensees claim that they are not required to register and pay taxes to the BIR since they derive income from sources not within the Philippines; this is based on the opinion of the Office of the Solicitor General.

Thus, this bill now clarifies that ALL offshore gaming licensees, regardless of whether Philippine or foreign-based are considered doing business in the Philippines, and must pay 5% gaming tax on the gross gaming revenue or receipts derived from their gaming operations. This gaming tax will be in lieu of all taxes.

Meanwhile, income generated from non-gaming activities shall be subject to the lower Corporate Income Tax rate, as provided in Republic Act No. 11534, otherwise known as the CREATE Act.

Withholding Tax for Alien Individuals: Alien individuals employed by offshore gaming licensees and service providers will be subject to the 25% withholding tax rate, considering that they are not engaged in trade or business within the Philippines.

The practice of most POGO entities to withhold and remit Withholding Tax on Compensation based on Section 24 of the NIRC, or the graduated income tax rates, instead of the 25% Final Withholding Tax will be corrected.

As clearly stated in the bill, 25% final withholding tax based on gross income will be imposed on an alien individual, regardless of residency in the Philippines, term, and type of visa.

Minimum Withholding Tax of Alien Individuals Employed by Offshore Gaming Licensees and Service Providers: The pervasive misdeclaration on the actual monthly salary of foreign nationals working in the POGO industry will also be addressed by the bill, as it provides a minimum final withholding tax due of PHP 12,500.00 for any taxable month from said person.

VAT Zero Rating of Service Providers: As discussed during our hearing, offshore gaming licensees are considered as doing business in the Philippines. Consequently, the service providers which are servicing offshore gaming licensees cannot be subject to VAT zero-rating.

This is also Consistent with RA No. 10963, otherwise known as the TRAIN law, in order to avail of the VAT zero-rating, the service must be for a business located outside of the Philippines and not doing business in the Philippines. As such, these service providers should be subjected to VAT.

BIR as the Collecting Agent: In the Committee Report, we make it clear that the taxes due from offshore gaming licensees should be directly remitted to the Bureau of Internal Revenue, as the agency mandated by law to collect the same.

Third Party Auditor: In the Committee Report, PAGCOR and IPAs are mandated to employ a third party audit platform in order to ensure the proper taxes are due. In addition, periodic reports of the third party audit platforms should be submitted to the BIR for verification.

With that, Mr. President, we submit Senate Bill No. 2232, per Committee Report No. 262, for the scrutiny of our colleagues. Thus, I ask for your support in the passage of this relevant and very timely measure. Thank you, Mr. President. Thank you, dear colleagues.

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