Very rarely do you see casino operators and its investors be surprised about anything. But in the Philippines, operators and investors were thrown for a loop after the country’s Bureau of Internal Revenue (BIR) issued Revenue Circular 33-2013, which says that Pagcor, as well as its contractees and licensees, are all subject to pay a 30-percent corporate income tax on their net taxable income.
The 30 percent net income tax payment caught Pagcor’s licensees by surprise especially after the BIR announced in its circular that the decision would “take effect immediately”, leaving operators and investors scrambling on what to do after the dramatic shift in tax payments..
To be fair to the BIR, it wasn’t like they just plucked that rule from out of a tree. Philippine law does require corporations to pay a 30 percent tax of its net income. But the understanding, at least as far as Pagcor’s licensees were concerned, was that they would only have to pay the 5-percent franchise tax on their gross gaming revenue, as well as 15 percent gaming revenue taxes on VIP gambling and 25 percent on mass-market gambling.
Needless to say, the shift in policy had immediate effects, particularly on the share prices of the casinos in the stock market. Belle Corp. saw its shares drop 3.13 percent to 6.48 pesos in trading on the Philippine Stock Exchange earlier this week. It was worse for Bloomberry Resorts, which saw its shares drop 5.35 percent last Monday after the BIR ruling came out, and Melco Crown, whose share prices fell by almost eight percent.
In a filing to the Philippine Stock Exchange, Bloomberry Resorts addressed the new BIR ruling, saying that the licensees of Pagcor have all hunkered down to discuss the appropriate steps all of them would take to respond to the issue. The new BIR rule referred to here affects the entire gaming industry currently regulated by Pagcor. This is therefore an industry issue and the licensees of Pagcor are meeting to discuss and prepare a collective response to this matter.”
While Bloomberry opted for a little diplomacy in its statement, Melco Crown (Philippines) Resorts Corp wasn’t as cordial, saying in a statement that the company is “evaluating the different options available to it, including but not limited to, legal remedies and negotiations with relevant regulatory bodies.”
If it was made clear from the start that Pagcor licensees would not be exempt from paying income taxes, then these licensees would’ve made vastly different business plans before agreeing to licensing deals with Pagcor. After all, the 5 percent annual franchise fee on gross revenue was one of the main carrots that attracted these foreign investors to the country. But apparently, the BIR saw fit to call an audible on the fly, drawing the ire of operators and investors alike.
Rest assured, Pagcor and all of its licensees aren’ taking this decision lying down. Expect a response soon and from the looks of things, we won’t be surprised if this whole thing turns a little messy.
