The Supreme Court (SC) on Tuesday, January 5, stopped the government from imposing a five per cent franchise tax on the gross bets from the operations of the Philippine Offshore Gaming Operators (POGOs).
In a temporary restraining order (TRO), stopped by the SC was the imposition of POGOs franchise tax under Section 11 of Republic Act No. 11494 or the Bayanihan 2 Law.
The issuance of the TRO, which was arrived at in a 13-1 vote by the incumbent 14 SC justices in a full court session, was confirmed by Chief Justice Diosdado M. Peralta.
But no further details on the TRO were given by the Chief Justice.
Aside from Section 11 of RA 11494, also stopped by the SC was the enforcement of the Bureau of Internal Revenue (BIR) Regulation 30-2020 and Memorandum Circulars 102-17 and 078-18.
The TRO was issued based on the petition filed last month by 14-foreign-based POGOs which are all holders of gaming licenses issued by the Philippine Amusement and Gaming Corp. (PAGCOR).
The licenses issued by PAGCOR enabled the foreign-based POGOs to offer online games of chance via the Internet using a network and software or program exclusively to offshore authorized players, excluding Filipinos abroad.
Among the petitioners were Oriental Game Limited, Golden Dragon Empire Ltd., and Riesling Capital Limited.
The petitioners told the SC that the provision in RA 11494 and the administrative issuance in pursuance of the law are “patent violations of substantive due process and equal protection of the law, and are oppressive and offensive not only to the petitioners, but also to other foreign corporations who are subject to their provisions.”
They pointed out that “a closer examination would show that Sections 11 (f) and (g) of the Bayanihan 2 Law impose new taxes (in the guise of merely listing sources of funding) and are, therefore, an aberration because the entire law does not create or refer to the imposition of any new tax.”
They also said that the law unfairly uses as “tax base” the totality of wagers made through POGOs even as these bets are made online outside the Philippines in violation of the territoriality principle of taxation.
At the same time, they said that by using “gross bets” as tax base, it will necessarily include money eventually paid out as winnings by the firms.
“Since the tax base is the totality of the wagers made, without deducting or excluding the winnings or money paid out to patrons, what this means is that the petitioners are being made to pay tax even on money that does not flow to them as wealth or redound to their benefit, not to mention the fact that these are bets made offshore or outside of the Philippine taxing jurisdiction,” they also said.