DOF halts franchise tax on POGOs to comply with SC ruling

The Department of Finance (DOF) said it will comply the Supreme Court’s order barring the imposition of franchise tax on all bets generated by Philippine offshore gaming operations (POGOs) 

Finance Secretary Carlos G. Dominguez III said the Bureau of Internal Revenue (BIR) will halt the enforcement of the five percent franchise tax on POGO’s gross gaming revenues prescribed under the Bayanihan to Recover as One or Bayanihan 2 law.

Finance Secretary Carlos G. Dominguez III

 “We will respect the TRO ,” Dominguez told reporters in a mobile phone message when asked to comment on the high court’s 13-1 decision favoring POGOs.

Under Section 11 of Republic Act No. 11494 or the Bayanihan 2 Law, the BIR was supposed to impose a five percent tax on all bets collected by foreign-based companies licensed to operate offshore gaming in the Philippines.

However, the Supreme Court issued a TRO last Monday favoring 14 POGO companies that questioned the collection of additional levies from their gross gaming income.

The POGOs told the hight court 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,” they added.

The petitioners also noted that “these are bets made offshore or outside of the Philippine taxing jurisdiction.”