BIR Clarifies the Tax Treatment of the PAGCOR, its Licensees, and Contractees

The Bureau of Internal Revenue (“BIR”) in its Revenue Memorandum Circular (“RMC”) No. 32-2022, clarifies the franchise tax, income tax and Value Added Tax (“VAT”) due from the Philippine Amusement and Gaming Corporation (“PAGCOR”), its Licensees and Contractees based on current laws and recent jurisprudence.

Tax Treatment of PAGCOR

As held by the Supreme Court in the case of PAGCOR vs. BIR, the income of PAGCOR from its gaming operations is subject only to five percent (5%) franchise tax under Presidential Decree (“PD”) No.1869, as amended while its income from other related services shall be subject to the corporate income tax rate in the National Internal Revenue Code (“NIRC”).

Accordingly, the following income from its operations and licensing shall be subject to five percent (5%) franchise tax, in lieu of all taxes:

1. Casino operations
2. Dollar pit operations
3. Bingo operations, including all variations thereof
4. Mobile bingo operations operated by it, with agents on commission basis. Provided, however, that the agent’s commission income shall be subject to regular income tax, and consequently, to withholding tax under existing regulations

On the other hand, income from “other related operations/services” shall be subject to Corporate Income Tax, VAT, and other applicable taxes under the NIRC, as amended. This includes, but is not limited to:

1. Regulatory/license fees from licensed private casinos;
2. Regulatory/license fees from private bingo operations, including all variations thereof;
3. Regulatory/license fees from private internet casino gaming, internet sports betting and private mobile gaming operations;
4. Regulatory/license fees from private poker operations;
5. Regulatory/license fees from private junket operations;
6. Regulatory/license fees from SM demo units;
7. Regulatory/license fees from all other electronic derivatives of brick-and-mortar games regulated by PAGCOR;
8. Income from other necessary and related services, shows and entertainment

Tax Treatment of PAGCOR’s Licensees and Contractees

In the case of Bloomberry Resorts and Hotels, Inc., vs. BIR, it was ruled that P.D. No. 1869, as amended, expressly provides that the payment of the five percent (5%) franchise tax of PAGCOR inures to the benefit of its Contractees and Licensees. Hence, like PAGCOR, its Contractees and Licensees shall be exempt from the payment of corporate income tax realized from the operation of casinos upon payment of the five (5%) franchise tax.

However, the Court in the case of Court in CIR vs. Acesite (Philippines) Hotel Corporation and in the case of Thunderbird Pilipinas Hotel & Resorts, Inc. vs. CIR, clarified that PAGCOR’s exemption for VAT extends only to those individuals or entities that have contracted with PAGCOR in connection with PAGCOR’s gaming operations or its Contractees, but not its Licensees. 

Tax Treatment of PAGCOR’s Licensees Located in Ecozones/Freeports

For Licensees that are within the Ecozones/Freeports, their income realized from other related services/operations shall be subject to the tax regime applicable to said Licensees, which is either 5% Gross Income Tax (“GIT”) or Income Tax Holiday (“ITH”). If they are under 5% GIT, then, they are exempt from regular Corporate Income Tax and VAT. On the other hand, if they are under ITH, then, they are also exempt from the regular Corporate Income Tax but are subject to VAT. Their income from gaming operations, however, shall not be subject to the GIT, ITH or Corporate Income Tax but remains subject to the 5% Franchise Tax in accordance with PD No. 1869, as amended, and the aforecited jurisprudence.
The full text of the RMC can be accessed here.