Pogos cannot be made liable for taxes prior to RA 11590 – SC

INQUIRER FILE PHOTO

MANILA, Philippines — Offshore gaming operators in the country “cannot be made liable for taxes prior to the enactment and effectivity of Republic Act 11590” or an Act Taxing Philippine Offshore Gaming Operations (Pogos), the Supreme Court (SC) said in a recent ruling.

RA 11590 was signed into law by then-President Rodrigo Duterte on September 2021. It amended the National Internal Revenue Code (NIRC) to improve the collection of taxes from Pogos and impose more taxes aside from the franchise tax on their operations.

Under the law, all offshore gaming licensees, whether Philippine or foreign-based, are considered doing business in the Philippines and must pay a 5-percent gaming tax on the gross gaming revenue or receipts derived from their gaming operations.

READ: Bill imposing more taxes on Pogo signed into law

Before its enactment, the government imposed a five percent franchise tax and income tax, value-added tax, and other applicable taxes on income from non-gaming operations earned by Pogo operators, agents, service providers, and support providers.

The government believed that such a measure would boost the government’s funds in its fight against COVID-19.

READ: PH runs after fleeing Pogos’ taxes to bolster COVID-19 war chest

But a recent Supreme Court verdict pointed out that prior to RA 11590, no valid law imposed taxes on Pogos, including offshore-based Pogo licensees.

“This Court deems it proper to emphasize that RA 11590 cannot be applied retroactively. Thus, Pogos, including offshore-based Pogo licensees, cannot be made liable for taxes prior to the enactment and effectivity of RA 11590,” the SC ruled.

Its pronouncement is contained in a 42-page decision that invalidated the government’s imposition of a five percent franchise tax on gross bets from the gaming operations of Pogos.

Specifically, the high court declared null and void provisions under Republic Act No. 11494 or the Bayanihan 2 Law and several revenue regulations issued by the Department of Finance (DOF) and Bureau of Internal Revenue (BIR).

Two separate petitions were filed by Pogos – first, by Saint Wealth Ltd., and second, by Marco Polo Enterprises Limited and 13 others. Both petitions question the legality of Section 11 (f) and (g) of the Bayanihan 2 and related revenue issuances of DOF and BIR, who were named respondents in the suits.

Section 11 (f)  and (g) of the Bayanihan 2 Law provides a list of sources of fund to address the COVID-19 pandemic, which includes the amounts derived from the five percent franchise tax on the gross bets from Pogos and income tax, value-added tax, and other applicable taxes on income from non-gaming operations earned by Pogo operators, agents, service providers, and support providers.

The SC, through Associate Justice Samuel Gaerlan, said the questioned provisions and issuances violate Section 26, Article VI of the Constitution, which mandates that “every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof.”

It indicated that the questioned provisions are considered a “rider” – which is prohibited. In the case of Atitiw v. Zamora, the SC said that riders are forbidden “to prevent hodge-podge or log-rolling legislation, and to ensure that all provisions of a statute have some reasonable relation to the subject matter as expressed in the title thereof.”

The government, through former  BIR commissioner Caesar Dulay and former DOF secretary Carlos Dominguez III, had admitted that Bayanihan 2 Law is not a tax measure. The law even mentioned that money to back COVID-19 relief measures will be taken from existing funding sources, which the SC stressed are supported by already existing laws.

The SC pointed out that Section 11 (f) and (g) are new taxes because “there was a statute which imposed the same taxes found in Section 11 (f) and (g) of the Bayaniyan 2 Law.”

“The imposition of new taxes, camouflaged as part of a long list of existing taxes, cannot be contemplated as an integral part of a temporary COVID-19 relief measure. Invariably 11 (f) and (g) of the Bayanihan 2 Law are unconstitutional, insofar as it imposes new taxes on Pogo licensees,” the SC said.

It further noted that while other provisions of the law are temporary in nature, new taxes on Pogo “intended to outlive the Dec. 19, 2020 expiration of the Bayanihan 2 Law.”

Consequently, the SC said BIR Revenue Regulation No. 30-2020, Revenue Memorandum Circular No. 64-2020, Revenue Memorandum Circular No. 102-2017, and Revenue Memorandum Circular 78-2018, in so far as they impose franchise tax, income tax, and other applicable taxes on offshore based Pogos, are “null and void for being contrary to the Constitution and other relevant laws.”

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