Tax POGOs in lieu of ‘a-sin’ tax

In fact, what the OSG opinion has raised is the lack of legal basis to tax POGOs.

There have been vehement reactions over the legal opinion rendered by the Office of the Solicitor General (OSG) on the tax coverage of Philippine Offshore Gaming Operations, or POGOs for short. In an opinion given to the Philippine Amusement and Gaming Corp. (Pagcor) and the Bureau of Internal Revenue (BIR), the OSG’s position is that POGOs cannot be taxed based on the “source of income” principle under the country’s National Internal Revenue Code.

The now controversial legal opinion rendered by Solicitor General Jose Calida cited that the test of taxability “is the source (of income) and correspondingly, the source of an income is that activity which produced the income.” Calida opined that a POGO operator, even if it employs a Philippine-based service provider, earns “from bets placed by its registered foreign subscribers.”

Both the BIR and Pagcor were not in agreement on these tax matters. Thus, they elevated the tax controversy to a third-party opinion and sought the OSG – as the government’s chief legal counsel – to clarify and sort out the differing legal views.

This was after Pagcor came out in September 2016 with rules and regulations for POGOs as licensees of the state-gaming agency. It was at a time when many online gaming was fast becoming popular in the Philippines as a site for POGOs.

This is a kind of online games of chance via the internet using a network or program exclusively to offshore authorized players who have registered and established an online gaming account, excluding Filipinos here and abroad. Subsequently, BIR commissioner Caesar Dulay issued a Revenue Memorandum Circular in December 2017 clarifying the taxability of POGOs and its gaming components.

In the meantime, POGOs have mushroomed all over Metro Manila and other highly urbanized cities in the Philippines. From then on, we have seen the influx of Chinese nationals, many of whom are employed as POGO workers.

And because POGOs cater to Chinese gamblers online, only Mandarin-speaking people are hired so that many of these Chinese coming here as tourists work for them without the required alien working permit from the Bureau of Immigration. Ergo, they have not been paying income taxes here, too.

When the OSG legal opinion came out to public knowledge, government officials from Malacañang to the Department of Finance as well as the National Economic Development Authority (NEDA) loudly opposed Calida’s legal views on the lack of tax jurisdiction over POGOs and its workers. Notably, however, there was nothing in the legal opinion of the Sol-Gen that states POGOs should or could be tax-exempt.

In fact, what the OSG opinion has raised is the lack of legal basis to tax the POGOs.

While there are no clear tax rules on POGOs, we are seeing a growing number of illegal POGO operations and Chinese POGO workers not paying taxes. Worse, we are also seeing rising incidents of kidnapping and extortion by Chinese criminals victimizing their fellow Chinese getting into deep debts due to their online gambling habits taking place in our country.

Hence, there is obvious necessity for the 18th Congress – specifically the House of Representatives from where tax and tariff initiatives must emanate – to legislate an amendment of the country’s Tax Code to capture this veritable source of tax revenues for the government.

Thus, the OSG legal opinion became the basis of Albay Rep. Joey Salceda, chairman of the House committee on ways and means, who earlier filed House Bill (HB) 5267. In his proposed bill, Salceda sought to impose a five-percent franchise tax on POGOs as well as another 25-percent income tax on POGO workers who he noted are mostly Chinese because majority of the gambling operators’ clients are from China.

In fact, the said House committee approved on Monday HB 5267 for plenary debate on the floor possibly starting next week. According to Salceda, he has recommended to President Rodrigo Duterte to certify the measure as urgent.

Salceda shared some insights of his bill during our Tuesday Club breakfast gathering at EDSA Shangri-La Ortigas yesterday. The Albay congressman, known for his straightforward talk, brushed aside Pagcor’s previous warning that POGOs might transfer elsewhere if they don’t like his proposed taxation regime. “No tax, no license. Let them go. Anyway, they are not paying taxes,” Salceda bellowed.

From data submitted to his House committee, there at least 100 POGOs that are illegally operating, while of the 60 licensed by Pagcor, several have temporarily closed shop.

Industry sources place the number of POGO workers at around 230,000, a bulk of whom are Chinese nationals. Official data from the Department of Labor showed there are only 119,000 Chinese nationals with alien employment permits, or special working permits who are working in Pagcor-licensed POGOs in the Philippines.

The emerging Philippine offshore gaming industry could be a deep well of wealth to source government revenues because reportedly it could generate more than P200 billion in income per month. “There is no more need for ‘asin’ (salt) tax if we just tax POGOs,” Salceda asserted.

Salceda refers to the “salt” tax being eyed by the Department of Health to help additional funding for the Universal Health Care program of the government. Making a pun on the “salt” tax, the Albay congressman broke down his surname into two Spanish words: Sal (which means salt) and ceda (which means silk). “We can trade POGO tax for asin tax and our islands in South China Sea,” he quipped and guffawed at his own joke.

Although he did not go into details, he was, of course, referring to China’s Silk Road initiative that offers soft loans and financial aids to countries like the Philippines. By continuing to host Chinese gambling operators, Salceda earlier mused, our country “might be legitimizing a business that is banned in China.”

His best argument is that no Filipinos are hurt if we tax POGOs and get to enjoy salted fish without asin tax.