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5% POGO franchise tax unconstitutional —SC

The Supreme Court has declared unconstitutional a provision in the Bayanihan 2 Law and several revenue circulars imposing a 5% franchise tax on gross bets or turnovers from Philippine Offshore Gaming Operations (POGOs).

In a 42-page decision, the Supreme Court declared Section 11(f) and (g) of the Bayanihan 2 Law unconstitutional, saying these violate the “one subject, one title rule” of the Constitution.

Section 11 mentions a 5% franchise tax based on the gross bets or turnovers earned by POGOs. The law states that the revenue will continue to be collected after two years or upon determination that COVID-19 has been contained.

“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, Section 11(f) and (g) of the Bayanihan 2 Law are unconstitutional, in so far as it imposes new taxes on POGO licensees,” the high court said.

Due to this, the Supreme Court also declared invalid RR No. 30-2020 and RMC No. 64-2020, which were issued to implement Section 11 of the Bayanihan Law for having no legal basis.

It also declared null and void Revenue Memorandum Circular 102-2017 and Revenue Memorandum Circular 78-2018, “in so far as they impose franchise tax, income tax, and other applicable taxes upon offshore-based POGO licensees.”

According to the court, the Republic Act 11590 or an Act Taxing Philippine Offshore Gaming Operations cannot be applied retroactively.

“All in all, before the reenactment of RA No. 11590, there is no valid law which imposes taxes upon POGOs, including offshore-based POGO licensees. However, this Court deems it proper to emphasize that RA 11590 cannot be applied retroactively,” it said.

“Thus, POGOs, including offshore-based POGO licensees such as the petitioners, cannot be made liable for taxes prior to the enactment and effectivity of R.A. No. 11590,” it added.

The decision was promulgated on December 7, 2021 but was released only on September 21, 2022.

The case stemmed from the petition filed by several offshore-based POGO licensees. 

One of the sponsors of the Bayanihan 2 Law, Senate President Juan Miguel Zubiri said they respect the high court's decision but added that the issue may have been rendered moot by the passage of RA No. 11590.

Despite this, he called on the government to look at the country's POGO policy.

“We have to undertake an in-depth review of the pros and cons of allowing POGOs to operate in our country in light of the recent spate of abduction cases and other established negative social costs,” Zubiri said.

Meanwhile, Senator Sherwin Gatchalian also cited RA 11590, saying the case is “moot and academic already.”

For his part, former Senate President Vicente Sotto III said the law was passed during the height of the pandemic.

“That law was conceived and passed during the height of the pandemic. We gave due consideration to that and I wish the judiciary gave it the same concern,” he said.

Meanwhile, House ways and means chairperson Joey Sarte Salceda said the decision affirmed the validity of RA 11590, which he authored.

“With the recent Supreme Court decision, RA 11590, or the POGO Tax Law undoubtedly becomes part of the law of the land. This is the strictest, most brutal tax law ever imposed on any sector, and I am proud of our work on that law,” he said.

Salceda said the taxes collected from POGOs jumped to 410 million monthly for the rest of 2021, after the implementation of the law, from P300 million from January to October 2021.

He also warned that closing down the whole POGO industry will cause social harm as it may lead to an underground sector.

“That is why we need to close down illegal POGOs and enforce the law. Legal POGOs already comply with the strictest tax provisions ever included in the Tax Code. If you close down the legal POGOs, you only incentivize the underground POGOs,” he said.

“As I have emphasized over the week: enforce the law. Don’t burn down the whole house just to kill the rat. Especially when, judging from PAGCOR itself, the rat seems to be outside the house anyway,” he added.

Senator Joel Villanueva, for his part, said the government must re-examine its policy on online gambling.

"The question remains: does [the] revenue the government generates from POGOs outweigh the social costs of online gambling? We filed Senate Resolution No. 225 precisely to investigate this matter, in the wake of the rising criminal activities that involves POGOs," he said.

Meanwhile, Senator Risa Hontiveros said she does not see any further reason why POGOs should not be banned with the decision of the Court.

“The Supreme Court has effectively removed the last remaining justification for POGOs — the revenue contribution to our national coffers,” she said.

“With the revenue from ancillary services debatable at best, and the real estate benefits negated by adverse impacts to the Filipino housing market, I don’t see any further reason why POGOs should not be banned from our shores,” she added.—KBK/AOL, GMA News