SC ruling seen stabilizing gaming sector

A new Supreme Court ruling that affirms the state-controlled Philippine Amusement and Gaming Corp.’s (Pagcor) exemption from the regular corporate income tax has boosted prospects for a lasting solution to what was feared to be a volatile tax regime faced by the burgeoning Philippine gaming industry.

“Pagcor welcomes the Supreme Court decision, which affirms what is provided under the Pagcor charter (Presidential Degree 1869 as amended by Republic Act 9487,” the gaming regulator said Friday.

If this SC ruling would become final and executory, Belle Corp. chief finance officer Manuel Gana said it would bode well for the gaming industry. “That’s going to be good in a sense that it gives long-term clarity to the situation. When the tax issue is no longer news, that’s going to be good for us,” Gana said, but noted that the long-term fiscal impact on gaming operators should be neutral.

Belle is the landlord of the newly built $1-billion City of Dreams Manila and is the parent company of Premium Leisure Corp., which owns half of the gaming operations of this integrated resort run by Macau’s Melco group.

The taxation framework affirmed by the SC is also seen as a simpler regime for all stakeholders to understand. But until the industry gets an advisory from Pag cor that the ruling was final and executory, Gana said the situation would be status quo—that the gaming industry would continue paying the regular income tax.

Based on its latest ruling, the SC said the BIR had committed grave abuse of discretion when it issued a memorandum circular subjecting Pagcor’s income from gaming operations and other related services to corporate income tax and the 5-percent franchise tax.

At present, Gana said it’s “too early to tell” what would happen as the latest ruling would still be likely subjected to appeals from the BIR.

The high court backed tax exemption for Pagcor’s gaming income as provided by its charter. Pagcor is mandated by its charter to pay a 5-percent franchise tax on its gaming operations and income tax on all other income. With the assailed BIR ruling, Pagcor was required to pay both franchise tax and income tax on all income, effectively being taxed twice for all its income rather than only once per kind of income.

The new ruling suggests that the gaming industry may revert to the previous system where all private licensees will pay 5 percent franchise tax on gross gaming revenues instead of the regular 30-percent corporate income tax. The BIR ruling created lot of jitters on the gaming industry previously as investors had come in on the assumption of a competitive cost structure versus regional gaming hubs.

To neutralize the impact of the controversial BIR ruling, Pagcor had earlier come out with an interim solution of cutting gaming operators’ license fees by 10-percent of gross gaming revenues.

From the start, however, gaming operators deemed the 10-percent license fee adjustment as only a “temporary measure” to address the unilateral BIR action and was not intended to modify, amend or revise the provisional licenses. All parties agreed to revert to the original license fee structure under the provisional licenses in the event the BIR action is permanently restrained, corrected or withdrawn.

Pagcor and the licensees had also agreed earlier on that the 10 percent license fee adjustment was not an admission of the validity of BIR’s controversial ruling and not a waiver of any of their remedies against any assessment by the BIR for income tax on their gaming revenue.