Exit plan

The Marcos administration can’t pop the champagne just yet even as Filipinos cheered the President’s big pronouncement during his State of the Nation Address, ordering a total ban on the Philippine offshore gaming operators (POGOs).

Now, his administration needs to do a lot of cleaning up and serious work as part of the post-POGO exit plan.

For one, the government would have to make up for the losses in revenue and business activities from the POGO exit – however insignificant our authorities deem this to be.

Economic managers said the costs of POGO far outweigh the benefits. Still, our taxman would need to find alternative sources of revenue to make up for what would be lost from the POGO industry’s exit from the country.

This is especially urgent with slower fiscal consolidation hounding the Marcos administration now and in the years to come.

Revenue

The Bureau of Internal Revenue (BIR), for instance, is now looking at taxing online sellers to raise additional revenue. According to its plan, merchants or sellers in online platforms are now subject to withholding tax effective last month.

BIR’s Revenue Regulation 16-2023 states that one-half of the gross remittances of e-marketplace operations and digital financial services providers to the sellers or merchants for goods or services shall now be subject to a one percent creditable withholding tax.

BIR Commissioner Romeo Lumagui Jr. stresses that this is not a new tax but merely including the sector in the withholding tax system.

It’s not yet clear how much the BIR expects to collect from this sector but with the proliferation of online sellers, it must be significant.

Will this make up for the taxes collected from POGOs? We’ll have to wait and see.

Taxes collected from POGOs more than doubled to almost P10.3 billion last year although still below the expected P32 billion when the Duterte administration passed the POGO Law in 2021.

From January to May this year, BIR data showed that taxes from POGOs already reached P14 billion – consisting of income, franchise, withholding, documentary and other taxes. This does not yet included license fees and share of the government in gaming revenues.

Will the BIR’s plan to tax online merchants yield billions in taxes, too? As I said, we’ll have to wait and see.

Additionally, the government would have to find new sources to plug the revenue losses that would inevitably appear in the trail of the POGO exit if only to fully realize the benefits of banning the industry.

Office market

Colliers also said the POGO ban is expected to push office vacancy rate to 22 percent by the end of the year from 19.3 percent in 2023. That’s a breach of the 20 percent level.

Thus, Colliers said real estate owners should make strategic adjustments to spaces previously tenanted by POGOs to cushion the impact of the industry’s exit from Metro Manila’s office market.

Colliers said POGOs occupied about 489,000 square meters of office space in Metro Manila as of end-June, or about 3.5 percent of the total office stock, as The STAR’s Richmond Mercurio reported last week.

In the office market universe, this is not that huge, considering that it represents only 3.5 percent of the inventory but whether we like it or not, this would still be significant enough to influence rental rates and related businesses.

Against this backdrop, Colliers said landlords, particularly those with high exposure to POGO tenants, should consider implementing various strategic adjustments.

“These include providing commercial concessions such as lower base rents, tenant improvement allowances and rent-free fit-out periods to make space more marketable to clients,” Colliers said.

Indirect benefits

There are other indirect benefits derived from the POGO sector, as the Department of Finance pointed out. These include compensation to laborers whose disposable income is spent on goods and services that generate economic activities.

DOF estimates the direct and indirect benefits of POGOs amount to roughly P166.49 billion a year.

But as reported by our public finance reporter Louise Maureen Simeon, the DOF’s cost-benefit analysis shows that the costs of POGOs are higher at P265.7 billion.

A huge part of this comes from supposed foregone revenues from investments and tourism due to the negative picture associated with criminal activities of illegal POGOs.

And this is where the Marcos administration needs to do a lot of cleaning up.

Simply banning POGOs does not necessarily mean that criminals and syndicates operating in the Philippines’ labyrinthine underworld will disappear or retire.

Our authorities must seriously investigate and bring to justice perpetrators of money laundering, peddlers of fake birth certificates and possibly, human traffickers. Otherwise such harmful and unspeakable acts will continue to hound us even after the POGO ban.

As what usually happens, syndicates behind organized crime may just lie low for a while until the spotlight dims; they would then reinvent themselves when the dust clears and continue perpetrating their crimes.

More importantly, authorities must keep an eye on illegal operators after the ban. E-sabong, jueteng and other similar activities have long been banned but have they really been fully eradicated?

Industry sources say otherwise.

Thus, authorities must pursue cases against perpetrators of crimes and their coddlers in high places.

Along with these efforts, the government must rid itself of bureaucratic red tape and corruption.

Only then can we send a message to legitimate investors that the Philippines is now a safe and friendly place to do business.

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Email: [email protected]. Follow her on Twitter @eyesgonzales. Column archives at EyesWideOpen on FB.