Online gambling operators face new tax in the Philippines

Philippine Offshore Gaming Operations (POGO) licensees received an unpleasant end-of-year surprise from the Bureau of Internal Revenue in the form of the announcement of a new 5 percent tax on gross earnings.

A local report in the publication Inquirer claimed that there was some confusion at state licensor and regulator Pagcor due to a lack of consultation.

A Pogo’s income from other related services or its nongaming operations, will be subject to normal income tax, value-added tax (VAT) and other applicable taxes, as may be deemed appropriate, the BIR said, noting that the 5-percent franchise tax in lieu of all taxes will not apply.

According to Revenue Memorandum Circular No. 102-2017 issued by Internal Revenue Commissioner Caesar R. Dulay on December 27: “The entire gross gaming receipts/earnings or the agreed or predetermined minimum monthly revenues/income from gaming operations under existing rules, whichever is higher, shall be subject to a franchise tax of 5 percent, in lieu of all kinds of taxes, levies, fees or 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,” the BIR added.

The taxman has also hit other gambling related services, namely gaming agents representing the offshore-based operator in the Philippines; service providers (of gaming software, business process outsourcing, and data/content streaming) as well as gaming support providers.

These will also be taxed a 5-percent franchise tax on their gaming activities and will likewise be subject to the normal tax rate and other appropriate taxes on their non-gaming operations, the BIR said.

Compensation, fees, commissions or any other form of remuneration as a result of services rendered to Pogo licensees or any other business entity licensed by Pagcor will be subject to applicable withholding taxes under existing revenue laws and regulations, The Bureau added.

Explaining its decision to impose the new tax, the Bureau commented:

“The BIR, not a newcomer to the workings and tax issues presented by online business transactions through the internet, feels that the challenge in gaming operations is how to implement a fair and equitable taxation of online gaming businesses, how to monitor the revenues and revenue-generating activities of Pogo and how to adapt existing taxes to Pogo so as to lessen the so-called ‘lost potential tax revenues. This is the perspective from which the current issue of taxing taxpayers engaged in Pogo should be viewed,”