30% casino income tax questioned

MANILA, Philippines - The imposition by the Bureau of Internal Revenue (BIR) of 30 percent income tax on profits of the Philippine Gaming and Amusement Corp. (Pagcor) from its operations and casino licensees has been questioned before the Supreme Court (SC).

In a 29-page petition, Bloomberry Resorts and Hotel Inc. (BRHI) asked the high court to issue a temporary restraining order stopping the implementation of BIR’s Revenue Memorandum Circular 33-2013.

BRHI is the owner of Solaire Resort and Casino in Pasay City.

The petitioner argued the new tax measure was issued with grave abuse of discretion and would drive away investors.

Through lawyer Purisimo Buyco, BRHI said the BIR violates the Pagcor charter and goes beyond the scope of Republic Act 9337, the law amending certain provisions of the National Internal Revenue Code.

BHRI lamented that the new BIR measure requires it to pay corporate income tax derived from operations relating to its contractual relationship with Pagcor, on top of the five-percent franchise tax that is supposed to pay in lieu of all kinds of taxes.

The BIR order stated that: “Pursuant to Section 1 of R.A. 9337, amending Section 27(C) of the NIRC, as amended, Pagcor is no longer exempt from corporate income tax as it has been effectively omitted from the list of government-owned or controlled corporations (GOCCs) that are exempt from income tax.”

“Pagcor’s income from its operations and licensing of gambling casinos, gaming clubs and other similar recreation or amusement places, gaming pools, and other related operations are subject to corporate income tax under the NIRC, as amended,” it added.

The circular further subjected Pagcor’s contractees and licensees to income tax under the NIRC.

The petitioner argued that subjecting Pagcor’s licensees and operators to income tax constitutes “unlawful and unwarranted legislation,” considering an exemption for such is specifically provided for by the Pagcor charter.

“Such unlawful legislation made by the BIR seriously affects national interest as it effectively curtails the basis for the investments in the industry and resulting tourist interest and jobs generated by the industry. It is evident that to impose tax burdens which are not provided for by law would be tantamount to crippling the gaming industry vis-a-vis the ability to compete with established gaming markets such as Macau and Singapore,” the petitioner said.

BRHI said Section 13(2) of Presidential Decree 1869 showed that Pagcor is exempt from indirect taxes because the law exempts from taxes persons or entities contracting casino operations.

The removal of Pagcor from the list of exempt government entities with the enactment of RA 9337 on March 24, 2005 does not affect the exemptions enjoyed by BRHI and other contractees and licensees of Pagcor, it said.

“That provision does not apply to private corporations like BRHI, and that amendment deleted only Pagcor from the list of tax-exempt GOCCs. There was no reference in that provision about Pagcor’s contracting parties, including its licensees,” it added.

“Since there is no reference at all to Pagcor’s contracting parties in RA 9337, the effect of that law cannot apply to the contracting parties of Pagcor such as BRHI,” read the petition.

BRHI also argued that if Congress intended to remove the tax exemption granted by PD 1869 to contractees and licensees of Pagcor, it should have promulgated a law amending PD 1869 or repealing the tax exemptions.

BRHI also noted that instead of amending PD 1869 or repealing the tax exemptions granted to contractees and licensees of Pagcor, Congress passed RA 9487 extending the franchise of Pagcor to 25 years.

On April 8, 2009, Pagcor granted to BRHI a provisional license to establish and operate an integrated resort and casino complex at the Entertainment City project site of Pagcor.

BRHI is one of four licensees granted such provisional license by Pagcor.

BRHI and its parent company, Sureste Properties Inc. (SPI), own and operate Solaire.

BRHI owns and operates the casino while its parent company SPI owns and operates the hotel and non-gaming component of Solaire.

BRHI and SPI invested approximately $650 million to construct and develop the existing Phase 1 of Solaire, including its casino facility.