Philippines – Game Is On For POGO Taxes.

Philippine Offshore Gaming Operators (POGO) have been a huge deal in recent years due to anticipated increase in tax revenues, inflow of investments, creation of jobs, and increase in real estate activity expected to come with their proliferation in the country.

Just in September this year, Republic Act (RA) 11590, otherwise known as an “Act Taxing Philippine Offshore Gaming Operations, Amending for the Purpose Sections 22, 25, 27, 28, 106, 108 and Adding New Sections 125-A and 288(G) of the NIRC of 1997, as Amended, and for for Other Purposes” was enacted with the objective of better collection of taxes from POGO.

As the primary agency tasked to implement the law, the Bureau of Internal Revenue issued Revenue Regulation 20-2021 on 25 November 2021 to implement RA 11590. RR 20-2021 provides that in lieu of all other direct and indirect internal revenue taxes and other local taxes, Offshore Gaming Licensees (OGL), or licensed offshore gaming operators, whether Philippine-based or foreign-based, must pay a gaming tax of 5 percent of whichever is higher of the (i) gross gaming revenue or receipts — which are gross wagers less payouts, or (ii) the agreed predetermined minimum monthly revenue from gaming operations.

Income from non-gaming operations is taxed at 25 percent income tax rate. All non-gaming revenues are subject to applicable Value Added Tax (VAT) or percentage tax.

OGL are not the only sources of taxation in such gaming industry. Those providing ancillary services to OGL such as customer and technical relations support, IT, gaming software, data provision, payment solutions, and live studio and streaming services are subjected to 25 percent income tax. Sale of services of VAT-registered accredited service providers are subject to zero-rating but only if the OGLs are paying the 5 percent gaming tax. In cases where the services are used in non-gaming operations of the OGL, zero-rating shall not apply.

Sale of goods by VAT-registered persons to OGL are entitled to zero-rating provided that 5 percent gaming tax are paid by the OGL. Zero-rating is inapplicable for sale of goods for non-gaming operations of the OGL.

All foreign employees of POGO regardless of residency or visa status are required to register with the BIR, obtain a tax identification number (TIN), and pay a final withholding tax (FWT) of 25 percent of their gross income. The FWT per person shall not be lower than P12,500, and must be remitted monthly.

To give teeth to the law, the BIR has access to various information and post-audit measures to ensure that proper taxes are being declared and paid. The BIR has required newly established POGO entities to submit an initial list of all foreign nationals they employed, together with notarized Employment Contracts accompanied with English translation if in a foreign language.

POGO are required to regularly update this list and to provide notarized contracts on the 20th day of the succeeding month; and, to provide a report on the amount of gross wages or bets, payouts, wagers less payouts, minimum guarantee fee or regulatory fees paid as certified by auditors, etc., subject to post-audit and verification by the BIR.

The BIR is also empowered to secure from the Department of Labor and Employment the list of foreign nationals employed by POGO who secured alien employment permits, including information on their monthly salary among others. The BIR shall secure from the Bureau of Immigration the list of foreign employees employed by POGO issued provisional working permits and/or 9(g) visas. The BIR is required to ensure the data privacy and security of all information obtained with the government agencies.

Non-compliance may prove costly to POGO and their foreign employees.

The BIR may implement closure orders against erring OGL, gaming agents, accredited services providers, which shall cease to operate. Non-registration, non or underpayment or non-withholding and remittance in violation of these rules are considered fraudulent acts and subject to incremental penalties under the Tax Code.

Failure to withhold and remit the FWT on income of foreign nationals from POGO may also result in the foreign national being subjected to deportation barred from re-entering, or blacklisted as a foreign employee. POGOs that employ foreign nationals without a valid TIN will be fined Php 20,000 for every foreign national without such TIN and the foreign national and the POGO shall be assessed the corresponding taxes, penalties, interests and surcharges.

Indeed, gambling in any form has a consequence. RA 11590 has clarified that recognition of legal forms of gambling including offshore online gaming is not an endorsement of these activities. But these measures no doubt show that revenue sources from legal gambling must be closely monitored and efficiently collected to the end that they benefit society in general in the form of taxes.