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SC: POGO ‘rider’ tax illegal

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

The Supreme Court has ruled unconstitutional a 5-percent franchise tax that the government imposes on gross bets from gaming operations of Philippine Offshore Gaming Operators (POGOs).

In an en banc decision written by Associate Justice Samuel Gaerlan, the Court said Sections 11(f) and (g) of the Bayanihan 2 Law that imposes the tax are unconstitutional for being what it described as “riders” and are not germane to the purpose of the law.

This violates the “one subject, one title rule” of the Constitution, the Court said in the 42-page decision promulgated last Dec. 7, 2021 but only released last Sept. 21, 2022.

Section 11 mentions a 5% franchise tax based on the gross bets or turnovers earned by POGOs. The law states the revenue will continue to be collected after two years or upon a determination that COVID-19 has been contained.

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

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

Due to this, the Supreme Court also declared invalid RR No. 30-2020 and RMC No. 64-2020, which were issued to implement Section 11 of the Bayanihan Law 2, for having no legal basis.

It also declared null and void Revenue Memorandum Circular 102-2017 and Revenue Memorandum Circular 78-2018, “in so far as they impose franchise tax, income tax, and other applicable taxes upon offshore-based POGO licensees.”

Several lawmakers, however, said the Court decision was moot, since a subsequent law, Republic Act 11590, specifically imposes taxes on the industry.

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

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 Law provide a list of sources of funds to address the COVID-19 pandemic, which includes the amounts derived from the 5-percent franchise tax on the gross bets from POGOs and income tax, value-added tax, and other applicable taxes on income from non-gaming operations earned by POGO operators, agents, service providers, and support providers.

The Court said the provisions violated Section 26, Article VI of the Constitution, which mandates that “every bill passed by Congress shall embrace only one subject, which shall be expressed in the title thereof.”

The Court noted that in its previous ruling in Atitiw v. Zamora, it said the prohibition against riders “is to prevent hodge-podge or log-rolling legislation, and to ensure that all provisions of a statute have some reasonable relation to the subject matter as expressed in the title.”

The SC said that respondents—former BIR Commissioner Caesar Dulay and former Finance Secretary Carlos Dominguez III—even admitted that Bayanihan 2 Law is not a tax measure.

“While the title of the law contains the phrase ‘providing funds therefor,’ it must be emphasized that all other provisions relating to sources of funding under Section 11, except for Section ll (f) and (g), are already existing taxes,” the Court said.

“The Bayanihan 2 Law merely realigns these already existing sources of funding and funnels it to be used for COVID-19 relief measures,” it said. It added that before the enactment of the Bayanihan 2 Law, there was no law in effect imposing franchise taxes, income tax, and VAT on offshore POGO licensees.

Consequently, the SC said 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 memos 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 should still be reviewed, despite the Supreme Court ruling.

“We have to undertake an in-depth review of the pros and cons of allowing POGOs to operate in our country in light of the recent spate of abduction cases and other established negative social costs,” Zubiri said.

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

“We filed Senate Resolution No. 225 precisely to investigate this matter, in the wake of the rising criminal activities that involve POGOs,” Villanueva said in another statement.

But Senator Juan Edgardo Angara said the Court decision was moot as Republic Act 11590, or An Act Taxing Philippine Offshore Gambling Operations overrode the provisions in the Bayanihan 2 Law.

The same point was made by Albay Rep. 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, or the POGO Tax Law undoubtedly becomes part of the law of the land. This is the strictest, most brutal tax law ever imposed on any sector, and I am proud of our work on that law,” Salceda said.

“One very notable portion of the decision reads: ‘Before the enactment of RA No. 11590, there is no valid law which imposes taxes upon POGOs.’ It also asserted that the enactment of RA 11590 rendered the petitions moot,” Salceda added.

“The Supreme Court’s decision thus implicitly affirms the validity of the POGO Tax Law. It is one of the strictest and most regulating 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 close down POGOs altogether, saying that the POGO Tax Law has already resulted in higher revenues for the government, contrary to earlier statements from some lawmakers.

“From January to October 2021, prior to the implementation of RA 11590, we collected only P300 million per month in taxes from POGOs. After the implementation, it jumped to P410 million monthly for the rest of 2021. By January 2022, it was up to P540 million for the month,” he said.

Salceda warned that closing the whole industry would create an entire underground sector, causing more social harm.

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

“That is why we need to close down illegal POGOs and enforce the law. Legal POGOs already comply with the strictest tax provisions ever included in the Tax Code. If you close down the legal POGOs, you only incentivize the underground POGOs. That’s like closing down whole ecozones just because there is some smuggling in them.”

“As I have emphasized over the week: enforce the law. Don’t burn down the whole house just to kill the rat. Especially when, judging from PAGCOR itself, the rat seems to be outside the house anyway.”

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

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

Pimentel and fellow opposition Senator Risa Hontiveros are pushing for a total ban on POGOs.

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

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

The suspect is now detained at the SPD custodial facility and will initially be charged with serious illegal detention before the Muntinlupa City Prosecutor’s Office.


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