LAST WORD

Taxing times for POGOs

Sharon Singleton | Managing Editor, AGB

Despite pressure from China, Philippine President Rodrigo Duterte has so far resisted pressure to ban online gambling.

Amidst reports of rising crime, including kidnappings and extorsion targeting Chinese operating in the sector, Beijing finally put its foot down in August. In a strongly worded statement issued through the Chinese embassy in Manila, Beijing warned it would not tolerate any form of gambling targeting its nationals and urged for help from Asian nations to stamp it out.

Cambodia complied immediately, obediently announcing an all out ban on the country’s flourishing i-gaming industry, which will take effect from the end of this year.

The government in Phnom Penh has already admitted that the decision will cost the country’s coffers dearly when it comes to tax revenue next year. Still, it’s hoping its decision will ensure the continued influx of Chinese investment, which has been such a key driver for economic growth in Cambodia.

For Manila, it was a different story. Duterte has been a loud and outspoken critic of gambling, especially online. But even he has now recognised the significant amount of revenue the Philippine Offshore Gambling Operators (POGOs) are generating and doesn’t want to kill the goose that lays the golden egg.

POGOs paid PHP175 million ($3.4 million) in taxes in their first year of operations. That rose to more than PHP579 million in 2018, with the figure jumping to PHP1.63 billion in the year to August alone.

POGOs are also key drivers of the Manila real estate market and local economy through discretionary spending, making them valuable contributors to growth in the Philippines.

Unlike Cambodia, Manila is not as reliant on China when it comes to foreign investment. According to figures from the Department of Trade and Industry, China was the largest foreign investor in 2018, making up some 28 percent of overseas investment pledges. However, investment by local Filipinos outweighed foreign investment by about five times.

As long as POGOs continue to generate money for the treasury, Duterte is unlikely to shut them down.

However, the government has also made it clear that it’s prepared to squeeze them to the maximum level possible and ultimately that may be the factor that slows growth in the sector.

As long as POGOs continue to generate money for the treasury, Duterte is unlikely to shut them down.

Getting a POGO license isn’t cheap. According to updated figures from the Philippine Amusement and Gaming Corp., the application fee for an e-casino is $150,000, while the actual license fee is $200,000, there is also a one-time bond of $300,000 and a license renewal fee every three years of $150,000. The numbers are slightly lower for sports betting.

Operators also complain of a myriad of hidden extras, which are hard to calculate.

There is a fee of 2 percent of gross gaming revenue, subject to a monthly minimum of $150,000 for an ecasino, payable monthly to PAGCOR, while the licensees also pay a 5 percent franchise tax on gross gambling receipts.

Over the past year, the Bureau of Internal Revenue and other related government departmentshave been cracking down hard on non-payment of taxes, especially non-payment of income taxes by POGO employees.

It sent a notice out to 48 POGOs earlier this year directing them to pay the withholding taxes of their foreign workers. As of August, 22 had replied and had coughed up PHP186 million. The BIR was expecting a further PHP170 million in coming months.

But now there is a proposal in the works for a further 5 percent tax that would be different from the 5 percent franchise tax.

The Department of Finance said that Finance Secretary Carlos Dominguez will support the proposal put forward by Albay 2nd District Representative Joey Salceda.

Salceda is also reportedly proposing a gaming tax of $10,000 a month per table for a live set-up casino and a $5,000 a month gaming tax for random number generator (RNG)-based games. He also plans to impose $1,000 presumptive corporate income tax per seat for POGOs.

Salceda, who chairs the House Ways and Means committee, said the panel is studying his proposals.

Salceda has been a vocal proponent for the government to enjoy POGO revenues while they last, but said it should also be prepared for when they leave. Overtaxation may just be the factor that cooks that golden goose.