Under its Charter, the Philippine Amusement and Gaming Corporation (PAGCOR) was given the mandate to regulate, operate, authorize, and license games, particularly casino gaming in the Philippines. Through this mandate, PAGCOR is expected to generate revenues for the Philippine Government’s socio-civic and national development programs, as well as help promote the Philippine tourism industry.
Not known to everyone, PAGCOR paid a staggering P5.2 billion worth of taxes to the Bureau of Internal Revenue (BIR). This amount represents the 5% franchise tax on PAGCOR and its Licensees/Proponents based on its annual audit report for the year 2020 posted on PAGCOR’s website.
In a bid to collect correct and complete taxes, the BIR issued last March 29 Revenue Memorandum Circular (RMC) No. 32-2022 with the purpose of clarifying the tax treatment of PAGCOR and its Licensees and Contractees on their income derived from gaming/casino operations and from other related services.
Below is a summary of the RMC:
Tax treatment of PAGCOR
a. Income from gaming operations
PAGCOR’s income from its operation and licensing of gambling casinos, gaming clubs and other similar recreation or amusement places, and gaming pools are subject to 5% franchise tax in lieu of all taxes.
These incomes include, among others: income from its casino operations; income from dollar pit operations; income from bingo operations, including all variations thereof; and income from mobile bingo operations operated by PAGCOR with agents on commission basis, provided that the agent’s commission income shall be subject to regular tax and consequently, to withholding tax.
The 5% franchise tax shall be in lieu of other direct and indirect taxes like income tax and value-added tax (VAT). In short, PAGCOR is exempted from corporate income tax (CIT), VAT, and other direct or indirect taxes.
b. Income from other related services
On the other hand, income from “other related operations/services” shall be subject to CIT, VAT, and other applicable taxes under the Tax Code.
These incomes include, but are not limited to: regulatory/license fees from licensed private casinos; regulatory/license fees from private bingo operations, including all variations thereof; regulatory/license fees from private casino gaming, internet sports betting, and private mobile gaming operations; regulatory/license fees from private poker operations; regulatory/license fees from private junket operations; regulatory/license fees from SM demo units; regulatory/license fees from all other electronic derivatives of brick-and-mortar games regulated by PAGCOR; and income from other necessary and related services, shows, and entertainment.
Likewise, PAGCOR’s other incomes that are not connected with the above operations are also subject to CIT, VAT, and other applicable taxes under the Tax Code.
Constituted as a withholding agent, PAGCOR shall withhold the appropriate taxes on compensation given to its employees and on income payments to local and foreign suppliers. Moreover, PAGCOR must also collect a qualifying fee from players and remit the same in accordance with the existing laws and regulations.
Tax treatment of PAGCOR’s Licensees
a. Income from gaming operations
PAGCOR’s Licensees’ income from the operation of casinos shall be exempt from regular CIT upon payment of the 5% franchise tax since the law is clear that said exemption inures and extends to their benefits.
For VAT purposes, however, the exemption extends only to those individuals or entities that have contracted with PAGCOR; hence, PAGCOR Contractees and not Licensees. As such, the Licensees’ revenues from gaming operations, involving sale of goods and/or services in the course of trade or business, are generally subject to VAT. But should the Licensees be contracted with PAGCOR in connection with the latter’s gaming operations, then the sale of goods and/or services performed with PAGCOR in relation to such gaming operations is subject to 0% VAT.
b. Income from other related services/operations
Income realized by PAGCOR’s Licensees from other related services/operations shall be subject to regular CIT, VAT, and other applicable taxes under the Tax Code.
Tax treatment of PAGCOR’s Licensees located in ecozones/freeports
a. Income from gaming operations
Income from gaming operations shall be subject to 5% franchise tax. For VAT purposes, the sale of goods and/or services in the course of trade or business is generally subject to VAT. However, if the Licensees are also contracted with PAGCOR in connection with the latter’s gaming operations, then the sale of goods and/or services performed with PAGCOR in relation to such gaming operations is subject to 0% VAT.
b. Income from registered other services/operations
For Licensees that are located in ecozones/freeports, their income realized from services/operations that are duly registered with their concerned Investment Promotion Agency (IPA) shall be subject to either 5% gross income tax (GIT) or income tax holiday (ITH), whichever is applicable.
Under the 5% GIT, the Licensees are exempt from regular CIT and VAT. On the other hand, under ITH, they are exempt from regular CIT but subject to VAT.
c. Income from unregistered other services/operations
Income realized from related services/operations that are not duly registered with the concerned IPA shall be subject to regular CIT, VAT, and other applicable taxes under the Tax Code.
Tax treatment of PAGCOR’s Contractees
a. Income from contract with PAGCOR
PAGCOR’s Contractees’ revenue derived from their contract with PAGCOR in connection with the latter’s gaming operations shall be exempt from regular CIT upon payment of the 5% franchise tax. However, for VAT purposes, the goods they provided to and/or services they performed for PAGCOR in relation to such gaming operations are subject to 0% VAT.
b. Income from non-gaming revenues or from other related services
These incomes are subject to regular CIT, VAT, and other applicable taxes under the Tax Code.
Remittance of the 5% franchise tax
The 5% franchise tax shall be payable directly to the BIR, specifically to the concerned Revenue District Office (RDO) where the Licensee is registered. This franchise tax is different and distinct from the license/regulatory fees paid by Licensees to PAGCOR.
All concerned taxpayers are enjoined to be guided accordingly.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 05 April 2022
