SC: POGO tax on “riders” is illegal

5% franchise tax on gross bets not relevant for Bayanihan 2 law

The Supreme Court has ruled unconstitutional a 5% franchise tax that the government imposes on gross wagers from gaming operations of Philippine Offshore Gaming Operators (POGO).

In an en banc decision written by Associate Justice Samuel Gaerlan, the Court said Sections 11(f) and (g) of the Bayanihan Act 2 which imposes the tax are unconstitutional for being what it described as ” riders” and are irrelevant to the purpose of the law.

It violates the Constitution’s “one subject, one title rule,” the court said in the 42-page ruling signed into law on Dec. 7, 2021 but not released until Sept. 21, 2022.

Article 11 mentions a franchise tax of 5% based on gross bets or turnover made by POGOs. The law states that revenues will continue to be collected after two years or if it is determined that COVID-19 has been brought under control.

But the Court said: “The imposition of new taxes, camouflaged as part of a long list of existing taxes, cannot be considered as part of a temporary COVID-19 relief measure.”

The sections of the law are unconstitutional, insofar as they impose new taxes on POGO licensees, he added.

For this reason, the Supreme Court also declared invalid RR No. 30-2020 and RMC No. 64-2020, which were issued to implement Article 11 of Bayanihan Law 2, for lack of legal basis. .

It also declared null and void Income Memorandum Circular 102-2017 and Income Memorandum Circular 78-2018, “to the extent that they impose franchise tax, income tax and other taxes applicable to foreign-based POGO licensees”.

Several lawmakers, however, said the court’s decision was moot because a later law, Republic Act 11590, specifically taxes the industry.

The decision stemmed from a petition filed by the POGOs which questioned the constitutionality of the provisions of the Bayanihan Act 2 and related regulations of the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR), which were named as defendants. .

The petition was filed by Saint Wealth Ltd., Marco Polo Enterprises Limited, MG Universal Link Limited, OG Global Access Limited, Pride Fortune Limited, VIP Global Solutions Ltd., AG Interpacific Resources Ltd., Wanfang Technology Management Ltd., Imperial Choice ltd. ., Bestbetinnet Ltd., Riesling Capital Ltd., Golden Dragon Empire Ltd., Oriental Game Ltd., Most Success International Group Ltd. and High Zone Capital Investment Group Ltd.

Sections 11 (f) and (g) of the Bayanihan 2 Act provide a list of sources of funds to deal with the COVID-19 pandemic, which includes amounts from the 5% franchise tax on gross bets POGOs and income tax. , Value Added Tax, and other applicable taxes on revenue from operations other than games won by POGO operators, agents, service providers, and support providers.

The Court said the provisions violated Section 26, Article VI of the Constitution, which states that “each bill passed by Congress shall cover only one subject, which shall be expressed in its title.”

The Court noted that in its earlier decision in Atitiw v. Zamora, she had said the ban on bikers “is to prevent mishmash or log-rolling legislation and to ensure that all provisions of a law have a reasonable connection to the subject matter as set out in the title.

The CS said the respondents – former BIR commissioner Caesar Dulay and former finance secretary Carlos Dominguez III – even admitted that the Bayanihan 2 law is not a tax measure.

“Although the title of the law contains the phrase “provide funds for this purpose”, it should be emphasized that all other provisions relating to sources of funding under Article 11, except for the section ll (f) and (g), are already existing taxes,” the court said.

“The Bayanihan 2 law only realigns these already existing sources of funding and channels them to be used for COVID-19 relief measures,” he said. He added that prior to the enactment of the Bayanihan 2 law, there was no applicable law imposing franchise taxes, income tax and VAT on offshore POGO license holders.

Therefore, the SC declared that BIR Revenue Regulation No. 30-2020, Revenue Memorandum Circular No. 64-2020, Revenue Memorandum Circular No. 102-2017 and Revenue Memorandum Circular 78-2018 were “null and void for being contrary to the Constitution and other relevant laws.

The petitioners – all holders of offshore gaming licenses from the Philippine Amusement and Gaming Corp. (PAGCOR) – argued that the provisions of the law and related administrative notices violated their right to due process and equal protection of the law.

Senate President Juan Miguel Zubiri said the government’s policies and regulations on POGOs still need to be revised, despite the Supreme Court ruling.

“We need to undertake a thorough review of the pros and cons of allowing POGOs to operate in our country in light of the recent spate of kidnapping cases and other established negative social costs,” Zubiri said.

Senate Majority Leader Joel Villanueva said the question remains whether the revenue the government generates from POGOs outweighs the social costs of online gambling.

“We filed Senate Resolution No. 225 specifically to investigate this matter, following the increase in criminal activity involving POGOs,” Villanueva said in another statement.

But Senator Juan Edgardo Angara said the court’s decision was moot because Republic Act 11590, or a statute taxing Philippine offshore gambling operations, overruled the provisions of Bayanihan 2.

The same argument was made by Albay representative Joey Sarte Salceda, who said RA 11590 was “the most brutal tax measure ever imposed on any sector of the Philippine economy”.

“With the recent Supreme Court decision, RA 11590, where the POGO tax law is undoubtedly part of the law of the land. This is the toughest and most brutal tax law ever imposed on an industry, and I am proud of our work on this law,” said Salceda.

“A very notable portion of the decision reads: ‘Prior to the enactment of RA No. 11590, there is no valid law imposing taxes on POGOs. He also claimed that the enactment of RA 11590 rendered petitions moot,” Salceda added.

“The Supreme Court decision therefore implicitly affirms the validity of the POGO tax law. It is one of the strictest and most regulatory tax laws in the statute books, and now the question of its constitutionality has been implicitly resolved. This is consistent with the Supreme Court’s general doctrine of preserving the power of Congress to determine tax policy as an exclusive power.

Salceda opposed suggestions to shut down POGOs altogether, saying the POGO tax law has already resulted in increased revenue for the government, contrary to previous statements by some lawmakers.

“From January to October 2021, before the implementation of RA 11590, we only collected 300 million pesos per month in taxes from POGOs. After implementation, it increased to 410 million pesos per month for the remainder of 2021. In January 2022, it was at 540 million pesos for the month,” he said.

Salceda warned that shutting down all industry would create an entire underground sector, causing more social damage.

“I need to know what social harm legal and compliant POGOs have caused. Tell me. Because even PAGCOR says those associated with the crime are not legal operators.

“That’s why we need to shut down illegal POGOs and enforce the law. Legal POGOs already comply with the strictest tax provisions ever included in the Internal Revenue Code. If you shut down legal POGOs, you are only encouraging underground POGOs. It’s like shutting down entire ecozones just because there’s contraband.

“As I’ve emphasized throughout the week: uphold the law. Don’t burn down the whole house just to kill the rat. Especially when, judging by PAGCOR itself, the rat seems to be outside the house anyway.

Senate Minority Leader Aquilino Pimentel III said POGOs should be subject to stricter government regulations and policies if they are allowed to operate.

“There is overwhelming support for a change in existing policies, and a change in existing rules and regulations, as well as a change in the current attitude of law enforcement,” he said.

Pimentel and his opposition colleague, Senator Risa Hontiveros, are pushing for a total ban on POGOs.

Meanwhile, the police rescued more than 30 foreign nationals working in an illegal POGO in the town of Muntinlupa.

The raid resulted in the arrest of a 35-year-old Chinese national, Qian Jing, the alleged owner of the establishment located at Dexin Building 999 along Montillano Street in Barangay Alabang.

The suspect is currently being held at the SPD detention center and will initially be charged with serious unlawful detention before the Muntinlupa City Prosecutor’s Office.

Earnest L. Veasey