PAGCOR wins Supreme Court fight with Philippine taxman


pagcor-bir-supreme-courtThe Philippine Amusement and Gaming Corporation (PAGCOR) has won a major court victory over the Bureau of Internal Revenue (BIR).

PAGCOR’s charter states that it must pay a 5% franchise tax on income derived from gaming operations – including the licensing of casinos – while corporate tax is payable on revenue derived from other PAGCOR services.

In 2011, the BIR issued a circular requiring PAGCOR to pay corporate tax on its gaming income after the Philippine government amended its National Internal Revenue Code. The amendment failed to specify that PAGCOR was among the state-owned agencies that were exempt from corporate tax and PAGCOR has been locked in a knife fight with the BIR ever since.

On Thursday, the Supreme Court ruled that the attempt to impose the corporate tax on PAGCOR “constitutes an overreach” and “grave abuse of discretion” on the part of the BIR. The Court said there was no need for Congress to grant PAGCOR a tax exemption because the exemption was explicitly stated in PAGCOR’s charter. The Court said that if Congress had truly intended to remove PAGCOR”s exemption it would have “expressly” done so because the “repeal of laws by implication is not favored.”

The friction between PAGCOR and the BIR has only ramped up since work began on the mega-resorts in Manila’s Entertainment City project. Before they started building, PAGCOR”s international casino licensees had agreed to pay the 5% franchise tax on gross gaming revenue plus 15% on VIP winnings and 25% on mass market gaming.

BIR claimed it had never been consulted on this arrangement and promptly slapped the 30% corporate tax on all licensees’ gaming income. Operators were rightfully pissed at this apparent bait-and-switch and PAGCOR attempted to cushion this blow by lowering casino license fees by 10%. PAGCOR said it would revert to the previous formula if/when the BIR’s reign of terror was “restrained, corrected, or withdrawn.”

Meanwhile, Philippine lawmaker Georgidi Aggabao has introduced new legislation in the House of Representatives that would “revoke the authority of PAGCOR to license casino and gaming club operators.” Aggabao believes PAGCOR has exceeded its original mandate of operating and maintaining casinos and wants to give Congress the authority to vet all contracts entered into by PAGCOR. This isn’t the first time Aggabao has gone down this road, having pushed similar legislation last spring.