Pagcor Spares Big Casinos from Tax Liabilities

Pagcor’s income is considerably lower after the gaming authority decided to award major casino operators a 10% license fee reduction.

While the Philippine Government’s financial resources are shrinking, the Bureau of Internal Revenue (BIR) is on a very important mission: to try and find ways to increase revenue collection.

A big part of these revenues come from the country’s gambling industry, which is under the direct supervision of the Philippine Amusement and Gaming Corporation (Pagcor). The gaming authority should be helping BIR collect more money, but instead it’s making its mission more difficult.

According to Philippine gambling news, Pagcor has recently introduced a measure that spares big casino companies from certain tax liabilities. Four operators in Manila’s Entertainment City closed a deal with the gaming regulator, who agreed to pay 10% of their license fees.

BIR wants casinos to pay 30% tax

According to local newspapers, the list of companies that profited from the license fee reduction:

• Travellers International Hotel Group
• Bloomberry Resorts and Hotel
• MCE Leisure
• Tiger Resorts Leisure and Entertainment

After realizing the impact the deal might have on the gaming authority’s annual income, senator Joseph Victor Ejercito proposed that officials look into the details of the agreement. He suggested that the Senate set up a committee to conduct an inquiry into the matter.

BIR Commissioner Kim Santos-Henares insinuated that the gaming authority and casino companies are conspiring to avoid paying the full amount of taxes owed to the state. In his Senate resolution, Ejercito demanded that the committee look into this matter as well.

The bureau sent out a memorandum to the state’s casino companies, warning that the National Internal Revenue Code states all operators licensed by the government have to pay a corporate income tax.

While the provisional licenses awarded to casino operators require companies to pay a 5% franchise tax on their gross gaming revenue, the memorandum says that large companies fall into a different category, and are subjected to a 30% corporate tax on net income instead.

P300 million in monthly losses

While Pagcor claims the reduction of the license fee is in line with Philippine gambling laws, the senator believes that the new agreement was meant to be a response to the memorandum sent out by BIR.

The gambling authority said Article IV, Section 20 of the Provisional License entitles companies to a license fee reduction, but Ejercito pointed out that the agreement has already caused the government to lose up to PHP300 million every month. The deal was carried out last April.

“Taxes are the lifeblood of the government and their prompt and certain availability [is] an imperious need,” the senator told reporters.

All this time, the bureau has only been cashing in 5% from Pagcor’s earnings, representing the franchise tax. Half of the remaining amount goes to the national treasury and a portion of the income is handed over to the Social Fund, to help finance priority projects of the Office of the President.

Profits soar after 10% reduction

The committees on government corporations and public enterprises will be handling the inquiry. Headed by Senators Cynthia Villar and Juan Edgardo Angara, the groups will look into the activity of casino operators licensed by Pagcor and will decide how they should be taxed. In addition, the Senate will carefully analyze the details of the agreement between the gaming authority and its licensees.

Before the deal was closed, casino operators were required to pay a 25% license fee. The money was taken out of their gross gaming revenue from gaming tables, slot machines and other casino games. For income earned at high-roller tables and junket operations, the fee was lower - 15%. Under the new agreement, these license fees were reduced to 15% for regular casino games and 5% for profit earned at high-roller tables.

At the end of August, the gaming authority posted a 5.2% decline in revenues for the first half of 2014. Total revenues dropped from PHP21.06 billion to PHP19.96 billion. Income from related services – including license fees paid by casinos – declined by 26%, from PHP6.02 billion registered last year to just PHP4.07 billion in 2014.

Under these circumstances, it comes as no surprise that the Senate is considering rethinking the taxing policy. It remains to be seen whether the government will allow casinos to get away with it.