Here’s something totally fucked up. While working people have been demanding tax relief and a restructuring of the income tax system, our government generously paid for the corporate income taxes of big casinos.
The national government practically lost P1.914 billion and US$7.629 million (P335 million) in revenues because the state-run Philippine Amusement and Gaming Corporation (Pagcor) gave some questionable perks to the big gaming firms in the Pagcor Entertainment City. Pagcor took a huge revenue cut so that it could pay for the corporate income taxes of some of the richest casino operators in the country. You read that right. Government just paid for the corporate income taxes of Solaire, City of Dreams and other licensees in the Entertainment City.
The findings of foregone Pagcor revenues appear in the latest Commission on Audit Report for 2014. Pagcor is run by President Benigno Aquino III’s classmate, Cristino “Bong” Naguiat.
Last year, Pagcor reduced the license fees of several Pagcor Entertainment City casinos by 10%, a move that stemmed from new tax policies laid down by the Bureau of Internal Revenue. Under the new policy, Pagcor licensees were no longer exempt from paying corporate income tax. The four licensees in the Entertainment City of course complained, arguing that their provisional licenses made them tax exempt.
As a response to complaints by the Entertainment City licensees, Pagcor agreed to reduce license fee payments of the casinos and allocate these to paying the corporate income taxes of the same casinos. Government paid for the taxes of these billionaires.
The four Pagcor licensees that benefited from the reduction in license fees were Travelers International Hotel Group affiliated with Andrew Tan, Bloomberry Resorts and Hotel which operates Solaire and is affiliated with Enrique Razon, Tiger Resorts Leisure and Entertainment of Kazuo Okada and partner Tonyboy Cojuangco, and the MCE Leisure Corporation affiliated with the SM group of Henry Sy which operates City of Dreams.
Sy of course is well known as the richest Filipino based on the Forbes List of Filipino billionaires. Tan and Razon are also part of that elite group of Filipino billionaires. Okada meanwhile is a well known Japanese gaming casino and slot machine mogul and ranks number 28 in Forbes list of Japan’s richest.
The reduction in license fees turned out to have a significant impact on Pagcor’s revenues and consequently, government tax collections.
According to the COA report, “Pagcor could have earned a total of P1.914 billion and US$7.629 million during CY 2014 and the Government could have collected franchise tax in the same amount had it not reduced by 10% the license fees being collected from certain licensees.”
“In view of the foregone opportunity to raise revenues, we recommend that the (Pagcor) Management revisit or reconsider its decision in reducing license fees that is inconsistent with its mandate of raising funds for the government’s socio-civic and national development efforts,” says the report.
So Pagcor’s P2 billion revenue cut was used to pay for the 2014 corporate income tax of the big gaming firms. The policy has not ended though. From January to August 2015, industry insiders estimate that Pagcor losses due to the license fee reduction could have already reached P2.27 billion.
The move is unconscionable as most likely illegal. There is no ruling, not even by the Supreme Court, that supports the government’s fee reduction.
License fee reduction for income tax payments
On April 17, 2013, the BIR issued Revenue Memorandum Circular 33-2013 subjecting PAGCOR’s gaming income and those from the operation of related services to both franchise and income tax. The same RMC stated that PAGCOR’s contractees and licensees are also subject to income tax under the NIRC.
The four big gaming companies argued that the provisional license granted to them by PAGCOR gives them the privilege of being exempt from corporate income tax. They complained that the BIR memorandum would result in a 10-12% tax exposure for their firms.
To address this, PAGCOR agreed to cut the monthly fees of the gaming firms by as much as 10% and allocate these to the payment of the corporate income tax of the licensees for the taxable year. The cut includes gaming revenues from high roller tables, non-high roller tables, slot machines and electronic and junket operations.
The Supreme Court, on December 10, 2014, eventually upheld the tax exemptions and privileges of Pagcor but did not rule on the so-called privileges being claimed by the Pagcor licensees and contractees. In its decision, the SC noted:
“As to whether petitioner’s (PAGCOR) tax privilege of paying five percent (5%) franchise tax inures to the benefit of third parties with contractual relationship with petitioner in connection with the operation of casinos, we find no reason to rule upon the same. The resolution of the instant petition is limited to clarifying the tax treatment of petitioner’s income vis-à-vis our Decision dated March 15, 2011. This Decision is not meant to expand our original Decision by delving into new issues involving petitioner’s contractees and licensees. For one, the latter are not parties to the instant case, and may not therefore stand to benefit or bear the consequences of this resolution. For another, to answer the fourth issue raised by petitioner relative to its contractees and licensees would be downright premature and iniquitous as the same would effectively countenance sidesteps to judicial process.”
Previously on September 4, 2014, the Governance Commission on GOCC’s asked the Pagcor Board to explain its decision of reducing the license fees of the big casinos. In its letter, the GCG wrote, “While GOCC Governing Boards are not expected to be infallible in the exercise of their business judgment, the precepts of public accountability and good governance require that at the very least they demonstrate in clear and specific terms how their business judgment was exercised with extraordinary diligence.”
“Based on your response, there appears to be no clear indication of what the adverse effects would have been had the PAGCOR Board not opted to reduce the license fees, especially since the clarification or amendment of tax laws resulting in new or prospective impositions is a regular risk of doing business in any jurisdiction. It is not clear how PAGCOR balanced the conflicting interests between its stakeholders in this case i.e. the investors and the national government.”
Clearly Pagcor and the Aquino government have only the interests of big business in mind.
Various groups are calling for a Black Payday protest on October 15 to demand tax reforms. Tax reform advocates assert that working people have been overburdened and overtaxed. Meanwhile, big business, like these casinos, have been given so many perks. It is time for working people to get some relief.
Bayan o negosyo? The answer should be very clear and obvious.