On April 17, 2013, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 33-2013 clarifying the income and franchise tax due from the Philippine Amusement and Gaming Corp. (Pagcor), its contractees and licensees. The RMC was issued to address the issue of the income tax due from Pagcor as well as from its contractees and licensees.
The confusion as to Pagcor’s exemption from paying income tax was a result of the enactment of several laws alternately removing and restoring Pagcor’s exemption from paying corporate income tax. The laws pertaining to Pagcor’s franchise and powers were consolidated by Presidential Decree No. 1869 where it provided that Pagcor would not be subject to any tax, income or otherwise, as well as fees, charges, or levies of whatever nature, national or local, except for a five percent franchise tax which would be in lieu of the abovementioned taxes and levies. Thus, when the 1997 National Internal Revenue Code (NIRC) was enacted, Pagcor was one of the government-owned and controlled corporations (GOCCs) which were exempt from paying corporate income tax under Section 27(C).
The subsequent enactment of Republic Act (RA) No. 9337, which amended Section 27(C) of the NIRC among others, excluded Pagcor from the enumeration of entities exempt from paying corporate income tax. The enactment of the law led to the case of Pagcor v. BIR (G.R. No. 172087, 15 March 2011) where Pagcor questioned the constitutionality of RA No. 9337 which removed its exemption from paying corporate income tax, alleging that the same is null and void for being repugnant to the equal protection and the non-impairment clauses embodied in the Constitution.
In the said case, the Supreme Court (SC) held that RA No. 9337 neither violated the equal protection clause nor the non-impairment clause of the Constitution. Based on the SC decision, RA No. 9337 did not violate the equal protection clause because the legislative records showed that the exemption of Pagcor from paying corporate income tax was merely due to the acquiescence of the Committee on Ways and Means to the request of Pagcor that it be exempt from such tax. Thus, the inclusion of Pagcor to the list of income tax-exempt entities was not based on a classification showing substantial distinctions, but was merely a result of its own request to be exempted from paying corporate income tax.
The SC further held that the non-impairment clause was likewise not violated since the privilege of Pagcor to operate and maintain gambling casinos and clubs was a result of the legislative franchise which, like any other franchise, is subject to amendment, alteration or repeal by Congress. Thus, even if the removal of Pagcor’s exemption may affect any benefits to Pagcor’s transaction with third parties, the same is not considered as violative of the non-impairment clause. Accordingly, the subsequent enactment of RA No. 9337 excluding Pagcor from the list of income tax-exempt entities was an amendment to the said franchise of Pagcor and shows the intent of the legislature to subject it to corporate income tax.
The said case led to the issuance of RMC No. 008-2012 which circularized the excerpts of the abovementioned decision. However, since the said decision and RMC No. 008-2012 only dealt with the income tax liability of PAGCOR, it somewhat created confusion as to the taxability of the contractees and licensees. This prompted the BIR to issue RMC No. 33-2013.
RMC No. 33-2013 clarified that Pagcor’s income from its operations and licensing of gambling casinos, gaming clubs, and other similar recreation or amusement places, gaming pools, and other related operations is subject to corporate income tax under the NIRC as amended. This include among others:
• Income from its casino operations.
• Income from its dollar pit operations.
• Income from regular bingo operations.
• Income from mobile bingo operations operated by it, with agents on commission basis, provided, however, that the agent’s commission income is subject to regular income tax, and consequently, to withholding tax under existing regulations.
Likewise, Pagcor’s income from other related operations (including, but not limited to: income from licensed private casinos covered by authorities to operate issued to private operators; income from traditional bingo, electronic bingo and other bingo variations covered by authorities to operate issued to private operators; income from private internet casino gaming, internet sports betting and private mobile gaming operations; income from private poker operations; income from junket operations; income from SM demo units; and income from other necessary and related services, shows and entertainment) as well as its other income not connected with the foregoing operations are likewise subject to corporate income tax.
RMC No. 33-2013 likewise specifically stated that the contractees and licensees of Pagcor are subject to income tax under the NIRC. In addition to the income tax, Pagcor is still subject to five percent franchise tax on the gross revenue or earnings it derives from its operations and licensing of gambling casinos, gaming clubs, and other similar recreation or amusement places, gaming pools, and other related operations as mentioned above.
With all these tax liabilities being clarified, the only remaining question will be whether RMC No. 33-2013 will apply prospectively or retroactively with respect to the income tax liability of the contractees and licensees of Pagcor, since it is specifically stated in the said RMC, thus clarifying, that the normal corporate income tax would also apply to Pagcor’s contractees and licensees whereas in the SC decision as well as in RMC 008-2012 circularizing the decision, only the income tax liability of Pagcor was specifically mentioned. Thus, the lingering question now will be how the BIR will treat the income tax liability of Pagcor’s contractees and licensees from the effectivity of RA No. 9337 in 2005 until the issuance of RMC No. 33-2013. As the BIR is the only institution that can answer this question and as long as no clarificatory issuance is made by the BIR, the contractees and licensees will have to gamble on this uncertainty.
April Rose B. Javier is a supervisor from the tax group of Manabat Sanagustin & Co. (MS&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email manila@kpmg.com or rgmanabat@kpmg.com