Gaming stocks drop as new tax regime on Pagcor sparks uncertainties

MANILA, Philippines — Gaming stocks fell sharply on Monday as the market weighed in the risks of a change in tax regime arising from the loss of tax-exemption status by the industry regulator Philippine Amusement & Gaming Corp. (Pagcor).

Pagcor, for its part, said the tax treatment on privately owned gaming operators would indeed change but assured that no Pagcor tax would be passed on to licensees.

Shares of Bloomberry Resorts Corp. (-5.35 percent), Belle Corp. (-4.56 percent) and Alliance Global Group Inc. (-3.6 percent) – all part of the main-share Philippine Stock Exchange index – were bludgeoned by concerns that Pagcor’s loss of tax-exempt status might have some spillover effect, dealers said. As such, these index stocks tempered the PSEi’s rise for the session.

Outside of the PSEi, Melco Crown (Philippines) Resorts Corp. (-4.96 perent) which recently completed a $377-million follow-on or re-IPO (initial public offering) deal, also tumbled. Melco is the operator of the upcoming Belle Grade integrated gaming complex built by the SM group through Belle.

In response to a query from the Philippine Daily Inquirer, Pagcor said that under its charter, it used to pay a 5-percent franchise tax on its gaming operations and income tax on all other income. “With this new ruling Pagcor will now pay both franchise tax and income tax on all income. Pagcor will in effect be taxed twice for all its income rather than only once per kind of income,” the statement said.

Currently, all private licensees pay 5 percent franchise tax on gross gaming revenues. “With the new ruling, they will be required to pay income tax on net income and no longer required to pay the franchise tax,” Pagcor said.

“No Pagcor tax will be passed on to the licensees. Their tax treatment will just be different from before. From franchise tax, now it will just be income tax.”

Some stock dealers said the prospective impact could be costly for gaming firms, if the taxation would change from the 5-percent franchise tax to regular income tax.

“In as much as our grand opening is still scheduled to open during the third quarter of 2014, we think that we have the luxury of time to plan on how to compensate for this and we are confident that our project will be successful financially regardless,” Belle vice chair Willy Ocier said in a text message on Monday.

In December 2011, Pagcor voluntarily settled unpaid back taxes amounting to almost P857 million incurred under the agency’s previous administration from 2004 to 2010. This was after this government corporation’s removal from the list of agencies that were exempted from paying corporate income tax.

The previous Pagcor management had contested before the Supreme Court the constitutionality of the removal of the agency from the said list and asserted that PAGCOR’s charter exempted the agency from paying the corporate income tax. However, the Supreme Court issued a decision on April 6, 2011 rendering as constitutional the removal of Pagcor from the list of corporate income tax-exempt entities.