Gaming stocks decline due to new tax system

Gaming stocks fell sharply Monday as the market weighed in risks of a change in tax regime arising from the loss of tax-exemption status by industry regulator Philippine Amusement and 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 its 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 percent), 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 Grande integrated gaming complex built by the SM group through Belle.

In response to a query from the Inquirer, Pagcor explained that 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,” it said in a statement.

Currently, all private licensees pay a 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.”

“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 yesterday.

Pagcor ended 2012 as the third biggest taxpayer among government corporations, having shelled out P5.5 billion to the BIR in 2012, of which P1.07 billion comprised corporate income tax.

UBS Securities, its daily commentary on Monday, said Pagcor’s removal from the list of agencies that were exempted from paying corporate income tax carried a “risk” to other operators. “But this is really up to Pagcor, not BIR (Bureau of Internal Revenue),” the commentary said. But citing its previous dialogues and conversations with Pagcor, UBS said it was likely that the gaming regulator would not pass on the cost to privately owned operators and licensees.