Supreme Court upholds Pagcor’s tax exemption

MANILA, Philippines—The Supreme Court has ordered the Bureau of Internal Revenue (BIR) to stop implementing its Revenue Memorandum Circular (RMC) 33-2013 subjecting income of Philippine Amusement and Gaming Corporation (Pagcor) from its operations and licensing of gambling casinos, gaming clubs and other similar recreation or amusement places, gaming pools and other related operations to corporate tax.

BIR issued RMC 33-2013 after the Supreme Court in 2011 ruled that Republic Act 9337 does not violate the Constitution. RA 9337 amended Section 27(c) of the National Internal Revenue Code in excluding Pagcor from the enumeration of entities exempt from paying corporate income tax.

The high court, in its 2011 ruling said RA 9337 did not violate the equal protection clause because the legislative records showed that the exemption of Pagcor from paying corporate income tax was due to its request which was granted by the Congress’ Committee on Ways and Means.

The high court further held that the non-impairment clause was likewise not violated since the privilege of Pagcor to operate and maintain gambling casinos and clubs was a result of the legislative franchise which, like any other franchise, is subject to amendment, alteration or repeal by Congress.

It added that the subsequent enactment of RA No. 9337 excluding Pagcor from the list of income tax-exempt entities was an amendment to the said franchise of Pagcor and shows the intent of the legislature to subject it to corporate income tax.

However, Pagcor asked the high court to clarify its 2011 decision.

The high court, in its recent ruling said RA 9337 did not amend the Pagcor charter. In its charter, its income from gaming operations is subject only the five percent franchise tax while its income from operation of other related services is subject to income tax only. The five percent franchise tax is not applicable to Pagcor income from other related services.

“Thus, it would be the height of injustice to impose franchise tax upon petitioner [Pagcor] for its income from other related services without basis,” the high court said.

It added that if Congress wanted to remove Pagcor’s tax benefits under its charter, it should have been stated in black and white.

“If no provision or amendment is stated in the franchise to effect the provisions of the general law (in this case RA 9337), it cannot be said that the same is the intent of the lawmakers, for repeal of laws by implication is not favored,” the high court said.

“In this regard, we agree with petitioner that if the lawmakers had intended to withdraw petitioner’s (Pagcor) tax exemption of its gaming income, then [its charter] should have been amended expressly,” the high court, through Associate Justice Diosdado Peralta said.

The high court said the BIR committed grave abuse of discretion when it issued RMC 33-2013 subjecting Pagcor’s income from gaming operations and other related services to corporate income tax and five percent franchise tax.

“Such act constitutes an overreach on the part of the respondent [BIR] which should be immediately struck down, lest grave injustice results,” the high court said.

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