BIR: 5% franchise tax on offshore POGOs in effect since 2017

July 27, 2020

The Bureau of Internal Revenue (BIR) has maintained that foreign-based Philippine Offshore Gaming Operators (POGOs) should pay the 5 percent franchise tax before they can resume their operations, as clearly stated in a memorandum circular issued by the agency back in 2017.

BIR Commissioner Caesar Dulay said the imposition of the 5 percent franchise tax on POGO licensees is “not a new imposition nor is it being imposed retroactively.”

“From the beginning, our Bureau has maintained the position that the said tax applies to all POGO Licensees and Operators and there was no change of rules midstream,” Dulay said in his comment to the memorandum sent by the Philippine Gaming and Amusement Corp. (Pagcor) to the Office of the President (OP) regarding the franchise tax imposed on POGOs.

A copy of the BIR’s comment was furnished Finance Secretary Carlos Dominguez III.

PAGCOR had pointed out in its memo to the OP that the 5 percent franchise tax was not previously imposed by the BIR, citing as basis an opinion issued by the Office of the Solicitor General (OSG) last Dec. 19, 2018.

Dulay, however, cited Revenue Memorandum Circular (RMC) No. 102-2017 dated Dec. 27 2017 on the “Taxation of Taxpayers Engaged in Philippine Offshore Gaming Operations” as the BIR’s basis for imposing the franchise tax.

RMC 102-2017 states that “the operations of POGOs…shall have the following tax treatment:

"The entire gross gaming receipts/earnings or the agreed or pre-determined minimum monthly revenues/income from Gaming Operations under existing rules, whichever is higher, shall be subject to a franchise tax of five percent (5%), in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description. This income is therefore exempt from any kind of tax, income or otherwise, as well as fees, charges or levies of whatever nature, whether national or local.”

Dulay said that on April 26 last year, he already sent a letter to the OSG reiterating the BIR’s stand and basis for the applicability of the 5 percent franchise tax to offshore-based licenses and operators.

Copies of the letter were also sent to Dominguez and Pagcor chairperson Andrea Domingo.

The BIR chief likewise pointed out that the legal opinion issued by the OSG on the issue “is not binding” because under “Section 4 of the NIRC (National Internal Revenue Code) as amended, the power to interpret provisions of the Tax Code and other tax laws shall be under the exclusive and original jurisdiction of the BIR Commissioner subject to review by the Secretary of Finance.”

In his comment to Pagcor’s memo, Dulay also corrected the erroneous claim that POGO operators are being assessed and paying their corporate income taxes, and value added tax (VAT).

He explained that POGO licensees or operators are not being assessed nor paying income tax and other taxes because the BIR’s RMC 102-2017 clearly states that in lieu of such taxes, they are only subject to the franchise tax.

"Only POGO service providers are subject to the regular taxes, such as income and VAT. However, both POGO operators and service providers whose employees earn compensation income need to withhold and remit the taxes due FROM them,” Dulay said.

Revenue rules provide that the foreign nationals compensation income shall be withheld 25% final withholding tax (WF). “However, instead of remitting the 25 percent final withholding tax (WF), majority are only remitting the withholding tax on compensation (WC), which is based on lower rates depending on each employee’s total amount of income,” Dulay said.

Dulay also doubted Pagcor’s claim that Malaysia has opened its doors to offshore gaming licensees and is offering a 10-year tax moratorium, on condition that 30 percent of the licensees’ total workforce are Malaysian citizens.

He said that based on research done by the BIR, all forms of gambling, whether online or offline, are illegal in Malaysia, which is a predominantly Muslim country and bound by Shari’a law.