NIRC Tax Research Journal Vol. XXVILS_September-October 201 Profile and Taxation of Selected Gambling and Betting Activities in the Philippines” I. INTRODUCTION Gambling has been a part of human civilization since time immemorial and continues to gain popularity in the vast majority of countries worldwide. In the Philippines, gambling, both legal and illegal, has long been part of Filipino culture as it is considered a popular pastime among the people. A survey conducted by the Social Weather Station (SWS) in 2005 revealed that at least 53% of adult Filipinos (62% of men, 43% of women) engaged themselves in some form of gambling.’ ‘The most common forms of gambling in the country are number games (jueteng), card games (c.g., “tong-its", bingo, etc.), horse racing, cockfighting, and betting in lotteries. Likewise, the Philippines is gradually etching its name in world casino as it is now known as Asia’s hidden gem with regard to the future of casinos and gambling in the region. Aside from the taxes being collected on the said industry, a portion of the proceeds from gambling and betting activities are mandated by law to finance priority activities/endeavors of the government. These gambling and betting activities with mandatory contributions to the government include casinos, lotteries, and horse racing. Thus, notwithstanding the issues associated with the industry, both its positive benefits (increase in earned income and improvement of social welfare) and negative outcomes (rise in crime rates and moral issues), this study discusses its economic benefits in terms of funding government priority activities/endeavors. It likewise reviews the taxation of the different types of gambling and betting activities and make recommendations therefrom. * Prepared by Eva Marie 'T. Nejar, Senior Tax Specialist, reviewed and approved by Monica G. Rempillo, Economist V, Economics Branch, NIRC. ' Steven Stradbrooke, “Philippines gambling survey says cockfighting more popular than bingo”, October 2, 2010 (latp://calvinayre.com/2010/10/02/business/philippines-gambling-survey), hutp:/www. worldcasinodirectory.com/philippines, Profile and Taxation of Selected Gambling and Betting Activities in the Philippines 1[NTRC Tax Research Journal Vol. XXVILS September-October 2015 I. INDUSTRY PROFILE Gambling and betting activities include a wide range of options such as bookmaking? and betting operations, off-track betting, operation of casinos (including floating casinos), sale of lottery tickets, operation of coin-operated gambling machines, and operation of virtual gambling web sites, Several government agencies oversee the activities of the industry, Casinos are operated and regulated by the Philippine Amusement and Gaming Corporation (PAGCOR) while the operation of lottery franchise is supervised by the Philippine Charity Sweepstakes Office (PCSO). On the other hand, horse racing is under the auspices of the Philippine Racing Commission (PhilRaCom) but the betting aspect of it is being handled by the Games and Amusement Board (GAB). A. Casinos Gambling in casinos has been regulated since 1977 when the PAGCOR was created under Presidential Decree (PD) No. 1067-A.° Simultaneous to its creation, supplementary laws and subsequent amendatory laws were issued which were later consolidated under PD 1869’ in 1983. The PAGCOR, a government-owned and controlled corporation (GOCC), is mandated to regulate, operate, authorize and license games of chance, games of cards and games of numbers. PAGCOR generates revenues for the government's socio-civic and national development programs, and helps promote the Philippine tourism industry. Aside from the casinos, PAGCOR also operates highly-exclusive, members-only slot machine VIP clubs as well as slot machine arcades in major cities across the country. PAGCOR also grants licenses of betting shops which include electronic games, electronic and traditional bingo, and sports betting. Table I depicts the increasing number of casinos and betting shops licenses approved by PAGCOR from 2007 to 2013 that grew by 77% and 198%, respectively. * A business of accepting the bets of others on the outcome of sports contests, especially of horse races, * National Statistical Coordination Board (NSCB), 2009 Philippine Standard Industrial Classification. * In accordance with RA 309 entitled “An Act to Regulate Horse Racing in the Philippines” (June 18, 1948) and Presidential Decree (PD) 420 entitled “Creating the Philippine Racing Commission” (March 20, 1974). Other gambling and betting activities being supervised by the GAB are intemational cockfight derbies, and Jai-Alai. Said activities, however, do not require mandatory contributions to the government, except in the form of taxes, fees and charges. Thus, not within the purview of this study. " Entitled “Creating the Philippine Amusement and Gaming Corporations, Defining Its Powers and Functions, Providing Funds therefore, and For Other Purposes”, approved January 1, 1977. ” Entitled “Consolidating and Amending Presidential Decree Nos, 1067-A, 1067-B, 1067-C, 1399 and 1632, Relative 10 the Franchise and Powers of the Philippine Amusement and Gaming Corporation (PAGCOR),” approved July 11, 1983. 2 Profile and Taxation of Selected Gambling and Betting Activities in the Philippines[NIRCTax Rescrch Fura Vol XXVILS SepienbexOsoker 3015 In 2013, there were a total of 55 operational casinos in the country, of which 47 were PAGCOR-franchise casinos and eight were licensed casinos. In the same year, PAGCOR approved a total of 727 betting shops licenses, 32% or 232 of which were for electronic games; 30% or 219 for electronic bingo; 26% or 186 for traditional bingo, and 12% or 90 for sports betting, However, traditional bingo declined in 2013 to 186 from 200 in the previous year. Table 1. NUMBER OF PAGCOR CASINOS, LICENSED CASINOS AND APPROVED BETTING SHOP LICENSES: 2007-2013 cafes | xen T Number of Approved Betting Shops Licenses License Year | “Casinos | Casinos | T#! | Electronic [ Fleetronie | Traditional | Sports | 44) L Games Bingo Bingo Betting | T°'#! 2007 27 4 31 B a2 129) - | 2s | 2008 37 4 4 im 36 140. -_| 307 a2 6 ae 162 a7 156 2 | 407 | 41 7 “a 169 109 1m, 16 | 466 zon | 42 7 49 193, 131 198 48_| 590 2012 46 7 53 222 189 200 si_| 692 2013 a7 8 = 232 219 186 90__| 727 Source of basic data: PAGCOR. At present, companies with licensed casinos in the country are the Travellers International Hotel Group, Inc. (TIHGI), owner and operator of Resorts World Manila; Melco Crown Philippines, owner and developer of City of Dreams Manila; Bloombery Resorts and Hotels, Incorporated, developer of Solaire Resort and Casino; Universal Entertainment Corporation, developer of Manila Bay Resorts which is expected to be completed before the end of 2015; Genting Hong Kong and Alliance Global Group, developer of the Resort World Bayshore; and Widus International Leisure Inc., owner and developer of Widus Hotel and Casino, among others B. Lotteries If gambling in casinos is considered to be one, if not the most expensive form of gambling, the most accessible and low-priced gambling option in the country is betting on lotteries, Lottery is a scheme for the distribution of prizes by chance among persons who have paid, or agreed to pay a valuable consideration for the chance to obtain a prize Pursuant to RA 1169%, as amended, the PCSO is mandated to raise and provide funds for health programs, medical assistance and services, and charities of national * Entitled “An Act Providing for Charity Sweepstakes Horse Races and Lotteries”, approved June 18, 1954. [Profile and Taxation of Selected Gambling and Betting Activities n the Philippines 3[ NTRC Tax Research Journal Vol. XXVIL5 Sepiember-October 2015 | character in the country from charity sweepstakes, races’, and lotteries. The main products of the PCSO are the sweepstakes and the lottery games. As of 2013, there were 7,127 lotteries and 997 Keno"” outlets throughout the country. CG. Horse Racing The racing clubs in the country that were granted franchises to operate and ‘maintain race tracks are the Manila Jockey Club, Inc. (MJCI) in Cavite per RA 6631!" as amended by RA 8407", Philippine Racing Club, Inc. (PRCI) in Manila under RA 6632"? as amended by RA 7953", and the Metro Manila Turf Club, Inc. (MMTCI) in Batangas pursuant to RA 7978'* as amended by RA 8298'°. These racing clubs also operate off-track betting (OTB) stations throughout the country. As of 2013, there were a total of 755 off-track betting stations in the country, 246 of which were owned by MICI, 255 by the PRCI, and 254 by the MMTCI. Of the total, 602 or 80% are located in NCR, 102 or 14% are in Region IV, 40 or 5% in Region II, eight or 1% in Region I, and three in Region V. Meanwhile, under RA 309, GAB was vested with the exclusive authority to issue permits to hold races to the racing clubs, licenses to jockeys, race officials, and * Under Sec. 4 of RA 1169, PCSO is granted the authority to hold charity horse race sweepstakes under such regulations as shall be promulgated by the PCSO in accordance with RA 309, For 2015, there are 15 PCSO-sponsored/maiden races in the country. "* Keno is an online game of chance that is similar to online roulette game in the casinos but with slight variations, ‘" Entitled “An Act Granting Manila Jockey Club, Inc., a Franchise to Construct, Operate and Maintain @ Race Track for Horse Racing in the City of Manila or in the Province of Bulacan”, approved October 23, 1972. "* Entitled “An Act Amending Republic Act Numbered Sixty-Six Hundred Thirty-One entitled “An Act Granting Manila Jockey Club, Inc., a Franchise to Construct, Operate and Maintain a Race Track for Horse Racing in the City of Manila or in the Province of Bulacan, Cavite or Rizal” and Extending the Said Franchise by Twenty-Five Years (25) from the Expiration of the Term Thereof”, approved November 23, 1997. '° Entitled “An Act Granting the Philippine Racing Club, Inc., A Franchise to Operate and Maintain a Race Track for Horse Racing in the Province of Rizal", approved October 23, 1972. '* Entitled “An Act Amending Republic Act Numbered Sixty-Six Hundred Thirty-Two Entitled “An Act Granting the Philippine Racing Club, Inc., a Franchise to Operate and Maintain a Race Track for Horse Racing in the Province of Rizal”, and Extending the said Franchise by Twenty-Five Years from the Expiration of the Term Thereof”, March 30, 1995, '* Entitled “An Act Granting the Metro Manila Turf Club, Ine. a Franchise to Construct, Operate and Maintain a Race Track for Horse Racing in the City of Kalookan”, lapsed into law on April 17, 1995 without the President's signature, pursuant to Sec. 27(1), Article VI of the Constitution '° Entitled “An Act Amending Republic Act Numbered Seventy-Nine Hundred Seventy-Fight, Entitled “An Act Granting the Metro Manila Turf Club, Inc., a Franchise to Construct, Operate and Maintain a Racetrack for Horse Racing in the City of Kalookan”, lapsed into law on June 6, 1997 without the President's signature, pursuant to Sec. 27(1), Article VI of the Constitution, 4 Profile and Taxation of Selected Gambling and Betting Activities in the Philippines[NRC Tax Research Jour Val KXVILS Sepiember-October 2015 management of wager bets. In 2013, the GAB’s Horse Racing Betting Supervision Division issued 1,622 permits and licenses to operate OTB, and supervised 23,910 betting activities.'” Ill, SURVEY OF ESTABLISHMENTS ENGAGED IN GAMBLING AND BETTING ACTIVITIES A. Number of Establishments In 2010 and 2012, the National Statisties Office (NSO) conducted a survey in the arts, entertainment and recreation industry to which gambling and betting activities belong.'* Based on the survey results, there were a total of 1,861 and 3,046 establishments engaged in the arts, entertainment and recreation industry in 2010 and 2012, respectively, or a growth rate of about 64% after two years. The increase in the number of establishments in said industry was mainly attributed to the rapid rise in the number of gambling and betting establishments from 158 in 2010 to 1,262 in 2012, or a growth rate of almost 700% in two years. (Table 2) ‘Table 2. NUMBER OF ESTABLISHMENTS IN THE ARTS, ENTERTAINMENT AND. RECREATION INDUSTRY: 2010 and 2012 Pea ] Percentage Percentage Industry Description zoro | Percen zor | Peevents Creative, Anis and Entertainment Activities | 60 430_| 16 S32 102.50 Libraries, Archives, Museums and Other 5 Cultural Activities ie oe) aid bid uz Gambling and Betting Activities 158 349 | 1362 a3 R73 Sports Activities 369 19.83 | 391 12.84 5.96 tier Amusement and Reston ae aaa noas aaa eon Total: Arts, Entertainment and asa a 1861 | 100.00 | 3046 | 100.00 63.68 Source of basic data: Philippine Statistic Authority-National Statistics Office (PSA-NSO). B. Employment Generation and Average Compensation Employment generated by gambling and betting activities was the highest among the sub-sectors under the arts, entertainment and recreation industry in 2010 and "GAB Accomplishment Report 2013. (http://www.gab gov.ph/wp-contenv/uploads/2014/10/2013- -omplishment-Reportpdf). "© The 2010 and 2012 Annual Survey of Philippine Business and Industry (ASPBI) — Arts, Entertainment and Recreation: Final Results were released on February 18, 2013 and November 26, 2014, respectively (Profit and Taation of Selected Gambling nd Being Aetiies the Philippines[TRC Ta Research Journal Vol XXVILS Sepiomiber October 2015 ] 2012. From 16,714 in 2010, it almost doubled to 33,182 in 2012, representing 41% and 54% of the total employment in the industry during the same period Meanwhile, the average annual compensation in gambling and betting activities reached PhP497,153.00 in 2010 but declined to PhP418,310.00 in 2012. Nonetheless, it accounted for 45% and 36% of the average annual compensation received by employees in the arts, entertainment and recreation industry during the same period. (Table 3) ‘Table 3. EMPLOYMENT AND AVERAGE ANNUAL COMPENSATION IN THE ARTS, ENTERTAINMENT AND RECREATION INDUSTRY: 2010 and 2012 Ave. Annual Employment Compensation Industry Description (in PhP) 2010 2012 2010 2012 (Creative, Arts and Entertainment Activities 1,668 2,526 [179,137 | 273,703, Libraries, Archives, Museums and Other Guinea Acid 1141 1,343 | 164,977 175,895 ‘Gambling and Betting Activities 16,714 | 33,182 | 497,153 | 418310 ‘Sports Activities 6.997, 7,750 [173,569 182,360 Other Amusement and Recreation Activities | 14.581 | _17,014 | 100,813, 123,533 Total: Arts, Entertainment and Ren 41,100 | 61,815 | 1,115,649 | 1,173,801 ‘% Share of Gambling and Betting ies to total Arts, Entertainment 40.67 53.68 44.56 35.64 and Recreation Source of basic data: PSA-NSO. G. Income and Gross Value Added (GVA) Gambling and betting activities generated a total income of PhP41.98 billion and PhP110.8 billion in 2010 and 2012, respectively, representing 72% and 84% of the total income of the arts, entertainment and recreation industry during the same period. On the other hand, the GVA of said activities totaled PhP30.03 billion and PhP41.41 billion in 2010 and 2012, respectively, representing 85% and 83% of the GVA of the arts, entertainment and recreation industry during the same period. It can be noted that the income and GVA of the gambling and betting activities grew by 164% and 38%, respectively, from 2010 to 2012. (Table 4) Profile and Taxation of Selected Gambling and Betting Activities in the PhilippinNTRC Tax Research Journal Vol. XXVILS_September-October 2015 Table 4. TOTAL INCOME AND GVA OF THE ARTS, ENTERTAINMENT AND RECREATION INDUSTRY: 2010 and 2012 (Amounts in Million PhP) Tecome Gros Value Added Industry Description Grewih ‘Growth oo | oe | cent | zo | ao | Gen Crete Anand Enterainment” sro] 162387| 33880] _7692| s7036| 1,031.77 ibrar, Archives: Museums and paces, Arties, Mio sisas|tanse| seer] sat nism[ 193] Gambling and Betting Activites | 4197740 | HOATS23 | 1643 |30a2726 | W068 | 3790 Spots Activites 549365] 688356) 2530) 232607] 2.71898[ 1667 ore and Recreation” [9 65.08 | 10,993.48 14.25 | 2,807.51 | 4,133.21 47.22 Tou: Arts Entertainment and 5527536] 131,67073 | 12598 | 3853800 | 49,840.08 ing and Betting to | 72.03: 84.20% : 84.50% | 83.08% - Source of basic data; PSA-NSO. D. Tourism The government is banking on the vibrant performance of gambling and betting industry to help develop the country’s tourism and boost international tourist arrivals to 10 million by 2016.'° The operation of large-scale casinos in Resorts World Manila and Solaire Resort and Casino, among others, could serve as tourist attractions that could help reach or even surpass the said target. IV. MANDATORY CONTRIBUTIONS TO THE GOVERNMENT The PAGCOR, PCSO and the three horse racing clubs administered by PhilRaCom are mandated by law to contribute a portion of their income to the government, A. PAGCOR From 2007-2013, PAGCOR’s mandatory contributions to the government amounted to PhP109.00 billion or PhP15.57 billion annually, representing 46% of its income during the period. (Table 5) fhe Philippines: Betting on a \ Gambling Boom", January 28, 2015, hutp://country eiu.com/article,aspx?articleid= 1042761488 &Country-Philippines&topi conomy Profile and Taxation of Selected Gambling and Betting Activities in the Philippines 7[IRC Tax Research Journal Vol. XXVILS September-October 2015 ] Table 5. PAGCOR’S TOTAL INCOME AND MANDATORY CONTRIBUTIONS: 2007-2013 (Amounts in Billion PhP) -——— Year| come | comtibaions | "snare 2007 27.81 13.46 48.40 2008 29.66 14.03, 47.30 | 2009 30.38 13.70 45.10 2010 31.47 13.42 2.64 2011 36.70 1591 43.35 [2012 40.88 17.65 43.18 2013 40.52 20.83 S141 Total | 237.42 109.00 : L Average | 33.92 1537 45.91 Source of basic data: PACGOR Annual Reports PAGCOR’s mandatory contributions went to: (a) Philippine Sports Commission (PSC) for the training of the country’s national athletes in international sporting events and in cultivating Philippines sports at the grassroots; (b) Board of Claims to give justice to those who were wrongly accused or prosecuted; and (c) President's Social Fund to finance high impact programs such as construction of school buildings, provision of potable water systems in the countryside, and funding of livelihood programs for the marginalized sectors of society, among others. PAGCOR likewise infused money to (a) National Sports Development Fund; (b) Renewable Energy Trust Fund; and (c) National Endowment Fund for Culture and the Arts. Meanwhile, some of PAGCOR’s mandatory contributions had already been completed prior to or within the period 2007-2013. This explains the decline in the percentage share of PAGCOR’s mandatory contributions to its total income from 48% in 2007 to 43% in 2012. Table 6 depicts the legal bases of PAGCOR’s mandatory contributions to the government. 8 Profile and Taxation of Selected Gambling and Betting Activities in the Philippines[RTRCTax Research Journal Vol. XXVILS September-October 2015 ] ‘Table 6. LEGAL BASES OF PAGCOR’S MANDATORY CONTRIBUTIONS. TO THE GOVERNMENT Legal Basis Description ‘Total Share Continuing - PD 1869 (1983) National Government Share Fifty percent (50%) of the remaining (95%) of the gross income of the PAGCOR' PD 1869 (1988) Host Cities’ Share Fixed amount is given to hosting Casino Filipino branches PD 1869 (1989) President's Social Fund Remaining balance of PAGCOR’s income after deducting all its mandatory contributions RA 6847 (1990) Philippine Sports Commission Five percent (5%) of the balance after the Franchise Tax and the NG’s mandated income share RA 7309 (1993) Board of Claims ‘One percent (1%) of the net income of the PAGCOR RA 7656 (2011) Dividend Law At Teast 50% of its annual net earnings remitted as cash, stock and/or property dividends RA 9064 (2002) National Sports Development Fund Depends on the amount necessary for the implementation of the cash incentives and retirement benefits program of athletes RA 9165 (2003) ‘Comprehensive Dangerous Drugs PhPS million a month Act of 2002 ener Renewable Energy Trust Fund | One and 1/2 percent (1.5%) of the net - (RETF) annual income of PAGCOR, RA 10066 (2013) National Endowment Fund for Culture and the Arts Total of PhP500 million or PhP100 million for $ years B. Completed RA 8479 Gasoline Station Training and (2002-2007) Tantei Total of PhP300 million for five years RA 8492 (2002-2010) Museum Endowment Fund Total of PhP250 million for nine years RA 8980 National Early Childhood Care (2002-2010) and Development Program Total of PhP2 billion for nine years RA 9178 Barangay Micro Business : (2004-2008) Enterprises Development Fund _ | 72%! of PAP300 million for five years | RA 9521 (2010) National Book Development Trust Fund PhPSO million Notes: Years in parenthesis indicate the start of PAGCOR’s mandatory contribution. "5% of PAGCOR’s income is paid as franchise tax. * Actual release of funds is on pending status until such time that the Implementing Rules and Regulation (IRR) and utilization report from the Department of Energy are released Source: PAGCOR. { Profit and Taxation of Selected Gambling and Betting Activities in the Philippines 9[NERC Tax Research Journal Vol XXVILS September October 2015 Table 7 presents the actual releases made by PAGCOR to government agencies in support of government activities/endeavors. ‘Table 7. PAGCOR’S MANDATORY CONTRIBUTIONS TO THE GOVERNMENT. 2007-2013 (Amounts in Million PhP) Percentage Particulars | 2007 | 2008 | 2009 | 2010 | zon | 2012 | 2013 | totat | “Share L J Total A Contoain PD 1800 - Sn | 142964 | 1.06195 | 1028526 | 0356 | sn8781 | 1305230 | 1208195 | sosstas| —maxs | Gov't Shar’ PD 1809 - Host Citi’ Share soos] 48732} 49572] 4932] 49042] 49712] 3.43240 33s PD 1869 President's | 1.47675 | 133567 | 122282 | 159234 | 1.47390 | 202826 | 2381.78 | 1188152 Luss Social Fund RA GS7 S96 PSC sods | sss10| ssi] sivss| song | 652.61] 658.10 | 408707 39s Share RATIOO= 19% Board of Chime Share wwso| isos} 533] 2782] 426] agai | —a305 | 16927 on RA 7656 Dividend 2 E : =| 1.00000 | 1400.00 | «090.00 | 6,450.00 63 Law RA 9068 Nationa Spomts Devt Fund was] sos} 607] 1500] 2646] 278] aaa | 332 007 RA 96S Dangerous : : 2 0.00} 60.00 0.06 Drugs Board RA 10006 Nav Endowment Fund or Ctr and the Ars t B. Completed =| 10000} 100.00 010 RAsa79 Gasoline Station 76.50 7 : 50 007 Training & Loan Fund RASH Museum Endowment Fund =| 7800 E =| 7800 on 0 Profle and Taxation of Selected Gambling and Beting Activities in the Philippines |[NIRC Tax Research Journal Vol. XXVIL5 September-October 2015 T Percentage Particulars | 2007 | 2008 | 2009 | 2010 | 201 | 201 | 2013 | Totat | Share te Total FAWN oalae Early Childhood Care Development Fund” RAgITE Barangay Micro sto | 10000 7 : Isio4 ois Business Enterprises sez) aseav | ao220] 1szai : -| saosin 17 RA9S21 National Book 50.00 50.00 0s Development 04 | 1768468 | 20,800.13 | 10899631 00 “Trust Fund 17 are Based on estate statements of income and expenses, From 2007-2012, the allocation for RA 9165 amounting to PAP6D million a year was inckued in the 50% Nationa Government Tear [wean [raeer [mae rae Ez Bal) Notes 2007 Replace by RA 10410, otherwise known a the “Early Years Act (EYA) of 2013", stated in 2014 Source of basic data: PAGCOR Annual Report B. PCSO Pursuant to Section 6 of RA 1169, as amended, the PCSO’s net receipts” are divided into; 55% - Prize Fund, 30% - Charity Fund, and 15% - Operating Fund, The Charity Fund is a trust and liability account and is used exclusively to finance and support health programs, medical assistance and services and/or charities of national character. Any disbursement from the Charity Fund must be authorized by the PCSO Board of Directors and approved by the Office of the President, regardless of the amount thereof. It is from the Charity Fund where the PCSO’s mandatory contribution to the government is being deducted. From 2007-2013, out of its total net receipts of PhP163.89 billion, the PCSO's mandatory contribution to the government reached PhP3.69 billion, sharing from 5% (2012) to 10% (2010) of its Charity Fund covering the period under review. (Table 8) PCSO’s mandated contributions to various government agencies and institutions are by virtue of special laws and executive issuances as follows: (Table 9) Out of the PhP3.68 billion total mandatory contributions of the PCSO to the government from 2007-2013, 47% or PhP1.73 billion went to LGUs’ share from lotto followed by the CHED’s Higher Education Development Fund and Greater Medicare Access Program (GMA) by the PhilHealth which received 19% ot about PhP700 million each. (Table 10) * Gross receipts from the sale of sweepstakes tickets, whether for sweepstakes races, lotteries, or similar activities, less printing cost of such tickets, which in no case shall exceed two percent of such gross receipts to arrive at the net receipts (Section 6, RA 1169), (Profile and Taxation of Selected Gambling and Being Acie he Pips i([RIRCTax Research Foul Vol XXVILS September October 2013 ] ‘Table 8. PCSO’S NET RECEIPTS, CHARITY FUND, AND MANDATORY CONTRIBUTIONS: 2007-2013 (Amounts in Billion PhP) [sor | sancsre | canon | tiga | SlSabeath, Sources of basic data: PCSO Financial Highlights CY 2007-2011 and 2013 Annual Report. Table 9. LEGAL BASES OF PCSO’s MANDATORY CONTRIBUTIONS. TO THE GOVERNMENT Legal Basis Description T I | ‘Total Share A. Continuing RA 6847 (1997) Philippine Sports Commission Six sweepstakes draws per annum. RA 7835 (1996) Comprehensive and Integrated Shelter and, Urban Development Financing Program 10% of the mandatory annual contributions by PCSO to the charity fund RA 7722 (1995) Higher Education Development Fund 1% of the lotto gross sales RA 8175 (1997) Crop Insurance Program 10% of the net earnings of the PCSO from its lotto operation RA 8042 (1998) ‘The Congressional Migrant Workers Scholarship Fund PhP150 million from the proceeds of Lotto. | 0 357 (1996) LGUs" lotto share 5% from the Charity Fund RA 8492 (2004) National Museum Endowment Fund PhP250 million from the annual net ‘earings of PCSO from its earning in lotto RA 9165 (2003) Comprehensive Dangerous Drugs Act of 2002 10% of all unclaimed and forfeited sweepstakes and lotto prizes but not less than PhP12 million per year from PCSO EO 201 (2003) Standby Fund for the financial requirement for Severe Acute Respiratory ‘Syndrome (SARS) Awareness and Health Promotion Campaign? Amount not exceeding PhP! billion from the funds of PCSO EO 218 (2003) Standby Fund for the operations and programs of the Philippine Drug Enforcement Agencs PhP! billion from the funds of PCSO EO 447 (2003) Greater Medicare Access (GMA) Program PhPI,125 million Profile and Taxation of Selected Gambling and Betting Activities in the PhilippinesNTRC Tax Research Journal Vol. XXVIILS September-October 2015 Legal Basis Description Total Share Tow Priced Medicines Program PRP 100 million Safe Motherhood and Responsible aed ee PAP1O0 million Botika ng Bayan Program® PAPIOO mil ‘Avian Influenza Program® APSO million B. Completed RA 8370 ‘National Endowment Fund for Children’s | PhP3O million sourced from the income (2012-2013) Television of lotto operations of PCSO RA 9344 PRPSO million from the proceeds of |(Gn0e 2013) Juvenile Justice and Welfare Act of 2006 | Priery Office of the President (OP) 5 fated Apat2s, | Gaot na Mabisa Alay ng Pangulo PhP7S million from PCSO 2007 RA 9521 5 onio2013) National Book Development Trust Fund | Total of PhPSO mill ‘Notes: Years in parenthesis indicate the tar/duration of PCSO"s mandatory contribution, * Funds are released only when circumstances warrant. Source: PCSO. Table 10, PCSO’s MANDATORY CONTRIBUTIONS: 2007-2013 (Amounts in Million PhP) = Percentage acaecmman | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | rota | Shareto Total “Continuing RA 6847 - PSC 2a5[ S00] S00, sm] - [1000 | 30.00 | —a785 To RA 7835- Comprehensive and Integrated Shelter and Urban Development Financing Program E soo| : - | 277} 500] 3077 oss RA 7722 Higher Education Dev't Fund 7.00 | 7821 | 19555| 11961 | - | 681 | 17500| 703.88 1913 RAST? Crop Insurance 125| 360] 735 | 1000] soo| 2720 om Congressional Migrant Workers Scholarship Fund_| : ozo]. =| 211s} s000 | o1as 1.67 EO 357- LGUs" toto share 15408 | 7893 | 72.50 | 374.58 | 38526 | 203.89 | 4s78s | 1,727.09 4695 RA 8492 —NavT Museum's Endowment Fund | - : : so0| = | 40.00| so.00| 95.00 258 RAI65- Comprehensive Dangerous Drugs Act of 2002 E 600] - =| 1200 | 2770] 12.00| 5770 Ls7 (Profit and Taxation of Sleced Gambling and Beng Aeties nthe Philippines aNTRC Tax Research Journal Vol. XXVILS_September-October 2015 Percentage 2007 | 2008 | 2009 | 2010 | 201 | 2012 | 2013 | Total | Share to a | rar Contribution to the Government EO2I8- Standby Fund for the operations and programs of the Philippine Drug Enforcement Agenc} o38| 03s] o7s| - : 550| 300| 10.01 027 EO 447 Greater Medicare Access Program (GMA). PhilHealth 90.24 | 191.38 | 25267] 12745 | 30.00] - : 691.74 18.80 EO 447 - Low Medicine 2soo| - - - : : 25.00 0.68 B. Completed RA 8370- National Endowment Fund for Childre Television = F : =| 1000} 2000} 3000 082 RA 9344 - Juvenile Justice and Welfare Act ‘of 2006 2 soo| tooo] - | 2087] 1000] 4587 125 RA 9521 National Book Development Trust Fund : - - 1s00|_- | 2000] 1500| _ s0.00 1336 (OP - Gamot na Mabisa Alay ng angle 75.00 | - - : z : 75.00 2os Total 418.80 | 368.50 | 539.12 | 666.64 | 427.26 | 45039 | 807.85 | 3,678.56 100.00 Source of basie data: PCSO. C. Horse Racing Clubs As mandated by their franchise laws, the three horse racing clubs contribute to the national government, to LGUs where the racetracks are located, and to their legislated beneficiaries a portion of their gross receipts from the sale of betting tickets; a fraction of less than PhPO.10 from the dividends paid to winning tickets known as breakage; and from their VAT payable in lieu of franchise tax pursuant to RA 7716?', as amended by RA 8241”, *' Entitled “An Act Restructuring the Value Added Tax (VAT) System, Widening its Tax Base and Enhancing its Administration, and For These Purposes Amending and Repealing the Relevant Provisions of the National Intemal Revenue Code, As Amended, and For Other Purposes, or otherwise known as “The Expanded VAT Law”, approved May 5, 1994. © Entitled “An Act Amending RA 7716, Otherwise Known as the Expanded Value-Added Tax Law ‘and Other Pertinent Provisions of the National Internal Revenue Code, as amended”, otherwise known as “The Improved VAT Law”, approved December 20, 1996. im Profile and Taxation of Selected Gambling and Betting Actes i the Philippines[NTRCTTax Research Joumal Vol XXVILS September October 2015 ] The PhilRaCom, on behalf of the government, receives 1% from the MJCI and PRCI and 0.5% from the MMTCI of their gross receipts from the sale of betting tickets. Likewise, the GAB gets 0.25%-0.5% from the gross receipts derived from the total sale of pari-mutuel races. In addition, the breakage is allocated to the PhilRaCom and for the provincial or city/municipal hospital where the race track is located, the rehabilitation of drug addicts, and for the National Stud Farm (NSF). However, with the issuance of EO 296” in 2000, the NSF was reorganized wherein its personnel, Programs, assets and resources were transferred to the Bureau of Animal Industry (BAD and the Bureau of Agriculture and Fisheries Standards and other agencies of the Department of Agriculture (DA). Later in 2003, EO 117* transferred the National Stud Book Division under BAI to the Office of the President and re-assigned it to the PhilRaCom. In view thereof, the NSF share is still on hold with the PRCI waiting for a legal basis as to the rightful beneficiary of the said fund, On the other hand, since the 25% franchise tax of the three horse racing clubs was replaced by the VAT, the Department of Finance (DOF) and Department of Budget and Management (DBM) issued Joint Circular No. 2008-125 specifying that the allocation of the 25% franchise tax of the MJCI and PRCI would be based on their VAT payable and to be allocated to the Philippine Anti-Tuberculosis Society, Inc., presently known as the Philippine Tuberculosis Society, Inc. (PTSI), a non-government organization (NGO) which operates the Quezon Institute (QI) Hospital and the Field Operations Division in charge of tuberculosis pavilions, clinics and microscopy centers around the country; the White Cross which is a temporary haven for children 0-6 years old, among others. On the part of the MMTCI, the allocation of its VAT payments is laid-out in its franchise law. (Table 11) From 2007-2013, the three horse racing clubs generated total gross receipts from all horse racing events amounting to PhP5S.78 billion or an average of almost PhP8 billion a year, of which PhP607.09 million went to PhilRaCom and PhP1.11 million to GAB during the period. (Table 12) On the other hand, based on the data provided by the BIR from 2007 to 2013, a total of PhP641.81 million VAT payments were collected from the MJCI and PRCT of which 25% or PhP160.45 million were allotted to the legislated beneficiaries as follows: PhP32.09 million to the NG; PhP32.09 million to the LGUs where the race track is located; PhP44.93 million to the PCSO and Municipal Hospital where the racetrack is located; PhP38.51 million to the Philippine Anti-Tuberculosis Society Inc.; and PhP12.84 million to the White Cross. Meanwhile, no VAT payment was made by the MMTCI since it only started its operations in 2013. (Table 13) Entitled “Integrating the Personnel, Programs and Resources of the National Stud Farm with Other Units/Agencies of the Department of Agriculture”, signed October 3, 2000. * Entitled “Transferring the Philippine National Stud Book of the then National Stud Farm, from Department of Agriculture to the Office of the President and Re-Assigning it to the Philippine Racing ‘Commission, signed February 17, 2003. ® Entitled “Guidelines and Procedure for the Release of the LGU Shares from the Value Added Tax (VAT) in lieu of Franchise Tax Collected from Racetrack Operations of the Manila Jockey Club, Ine. (MJCI) and the Philippine Racing Club, Inc. (PRCI)", dated June 16, 2008, Profile and Taxation of Selected Gambling and Betting Activities in the Philippines 15NTRC Tax Research Journal Vol. XXVIL5_September-October 2015 ‘Table 11, MANDATORY CONTRIBUTIONS OF THE THREE HORSE RACING CLUBS (In Percentage) Particulars Horse Racing Clubs MJCI PRCL MMTCI Gross Receipts Allocation Dividends among the holders of winning tickets 82.0 82.0 82.0 Grantee’s Commission/Fee 8.5 85 85 Payment of stake or prizes of win, place and ae iG a show horses and authorized bonus for jockeys PhilRaCom 10 1.0 05 Jockeys and Horse Trainers Injury, Disability and . . ag Death Compensation Fund Gross Receipts from the Sale of Pari-mutuel Races Allocation ay oe “| Breakage Allocation PhilRaCom soo | 25.0 50.0 royal cia hospitals where the on er on Rehabilitation of drug addicts 25.0 25.0 25.0 NSF*** - 25.0 - VAT Payable NG 5.0 5.0 3.0 Local Government 5.0 5.0 5.0 Philippine Anti-Tuberculosis Society, Inc. 6.0 6.0 3.0 PCSO z 7.0 : Municipal Hospital 7.0 2 2 White Cross 2.0 2.0 2.0 Public Health Workers : - 5.0 Department of Health - Cardiovascular Program: - - 3.0 ~ Water For Life Program - - zor Notes: * To be shared equally by GAB and Jockeys and Horse Trainers Injury, Disability and Death ‘Compensation Fund created under RA 309, as amended. (RAs 8407 and 7953) ** To be set aside for the use of GAB. (RA 7978) "“** Transferred to the Department of Agriculture (DA) in 2000 and then to PhilRaCom in 2003, Sources: RAs 8407, 7953, and 7978 and DOF and DBM Joint Circular 2008-1 16 Profile and Taxation of Selected Gambling and Betting Activities in the PhilippinesNIRC Tax Research Joural Val. XXVILS September October 2015 ] Table 12, PHILRACOM AND GAB’S SHARE FROM THE HORSE RACING CLUBs’ GROSS RECEIPTS: 2007-2013 (Amounts in Million PhP) “Apportioned Share , ‘Total Gross PhilRaCom ] a Receipts From From Gap foal Gross Receipts" _|__Breakage 2007 8,883.38 88.56 9.47 021 9824 | 2008 7,952.87 79.04 5.84 0.36 85.24 2009 7.71646 7.02 6.24 0.10 $3.36 |—2010 7,997.47 79.83 6.02 ou 86.56 2011 7,901.26 78.86 756 on 86.53, 2012 7,553.37 75.40 6.82 0.10 82.32 2013 7,780.48 77.66 8.17 0.12 85.95 Total 784. 356.37 50.72 Ll 608.20 e | 7,909.27 79.48 725 0.16 86.89 1% share from the total gross receipts from all horse racing events except those derived from the total sales of tickets for pari-mutuel races. 1% utuel betting. Figures may not add up to total due to rounding. Source of basic data: GAB, hare from total sales on pati ‘Table 13, TOTAL MANDATORY ALLOCATIONS FROM VAT PAYMENTS OF MJCI AND PRCI: 2007-2013 (Amounts in Million PhP) ] Total Share of Legislated Beneficiaries Total Yer | TAMYAT | Nauooat | uoeat | PC80%,| TREE | wate Government | Government | NiWIPI | Tuberculosis | Cross Society | 2008, 10.99 0.55 0.55 0.77 0.66 0.22 2.75 2012 232.22 1.61 1.61 16.26 13.93 4.64 58.06 | | 2013, 98.97 | 4.95 4.95 6.93 5.94 1.98 24.74 sharete | om om | m | am(NRC Tax Research Four Val XXVILS Sepienber October 2015 Y. TAXES IMPOSED ON SELECTED GAMBLING AND BETTING ACTIVITIES A. PAGCOR, Licensed Casinos and Casino Bettors and Winners PD 1869 (July 1983) granted the PAGCOR exemption from the payment of any type of tax, except a franchise tax of 5% of 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 operation. However, in June 1984, PAGCOR’s tax exemption was removed through PD 19312*, but it was restored by Letter of Instruction No. 1430 in September 1984, Upon the effectivity of RA 8424, otherwise known as the National Internal Revenue Code (NIRC) of 1997 on January 1, 1998, the PAGCOR, together with four other GOCCs, were exempted from paying the corporate income tax (CIT). However, with the enactment of RA 9337"’ on May 24, 2005, the PAGCOR was excluded from the enumeration of GOCCs that are exempt from the payment of the CIT under Section (27)(C) of the NIRC. On April 17, 2006, the PAGCOR sought before the Supreme Court (SC) the declaration of nullity of Section 1 of RA 9337 after which on March 15, 2011, the SC upheld the constitutionality of RA 9337. On April 6, 2011, the PAGCOR filed a Motion for Reconsideration. However, in its resolution dated May 31, 2011, the SC denied with finality the said Motion for Reconsideration. Thus, in December 2011, the PAGCOR voluntarily settled unpaid back taxes amounting to PhP657.18 million incurred from November 2005 to December 2010. From 2011-2013, the PAGCOR paid a total of PhP2.79 billion worth of income tax. Thus, the PAGCOR paid a total of PhP3.33 billion in CIT from 2007-2013. (Table 14) Table 14. PAGCOR’s TAX PAYMENTS: 2007-2013 (Amounts in Milion PhP) is . te Inc cel er oar el ea ecg Total 2007 1,097.86 112.45 121031 | 2008 1,164.42 120.49 1,284.91 2009 1,160.55 136.36 1,296.91 2010 1,093.74 170.56 1,264.30 2011 1,250.51 960.26 2,210.77, 2012 1,373.93 1,070.12 2,444.05 2013 1,379.15 759.65 2,138.80 Ctoar a 8,520.16 3,328.89 11,850.05 Source of basic data: PAGCOR. * Entitled “Directing the Rationalization of Duty and Tax Exemption Privileges Granted to Government-Owned or Controlled Corporations and all Other Units of Government”, June 11, 1984 ” Entitled “An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237, and 288 of the National Internal Revenue Code of 1997, As Amended, and For Other Purposes” (is Profile and Taxation of Selected Gambling and Betting Activities inthe Philipines |([NIRCTax Research Touma Vol XXVIS SepiiberOciber 3015] Further, on April 17, 2013, BIR issued Revenue Memorandum Circular (RMC) No. 33-2013" which clarifies the income tax and franchise tax due from the PAGCOR, its contractees and licensees.” Accordingly, the PAGCOR filed a Motion for Clarification with the SC on September 13, 2013 alleging that RMC 33-2013 was erroneous. On December 10, 2014, SC issued a ruling that sustained PAGCOR’s contention that its income from gaming operations is subject only to 5% franchise tax under PD 1869, as amended, while its income from other related services is subject to CIT. Accordingly, PAGCOR’s licensees became liable to 30% CIT on their net taxable income instead of the 5% franchise tax on their gross gaming revenue as provided in their respective Provisional Gaming Licenses. To cushion the impact of the imposition of the CIT, PAGCOR agreed to reduce the license fees by 10% to range from 5% to 15% instead of the original range of 15% to 25% of gross gaming revenues for the licensed casinos in Entertainment City Manila, known as PAGCOR City. However, the said 10% adjustment is to be remitted directly by the licensees to the BIR as income tax payment.*” Meanwhile, in terms of the winnings of casino players, Section 24(B)(1) of the NIRC, as amended, provides that the prizes of more than PhP10,000.00 and other winnings are subject to 20% final tax as implemented by Section 2.57-1 of Revenue Regulations (RR) No. 2-98", The said tax is being withheld by the PAGCOR and remitted to the BIR. As to winnings of PhP10,000.00 or less, the PAGCOR or the licensed casino is not required to withhold the 20% final tax; instead, the winner is required to file an income tax retum and declare the amount of winnings in the said return. PCSO and Lotto and Sweepstakes Bettors and Winners Under Section 4 of RA 1169 as amended by PD 1157°*, horse races and sale of sweepstakes tickets are exempt from all taxes, except (underscoring supplied) that each ticket is subject to PhPO.12 internal revenue stamp and a 5% prize fund tax to be Entitled “Income Tax and Franchise Tax Due From the Philippine Amusement and Gaming Corporation (PAGCOR), Its Contractees and Licensees”, ® Based on RMC 33-2013, PAGCOR’ income from its operations and licensing of gambling casinos, €tc., as well as its other income from other related operations are subject to CIT under NIRC, as amended. ™ Statement of the Philippine Amusement and Gaming Corporation on the Issues Raised by Bayan Muna Partylist Rep. Neri Colmenares, dated June 27, 2014 (hitp:/www.pacor.ph/press-releases/pagcor- statement-on-issues-raised-by-rep-neri-colmenares.php). *! Entitled “Implementing RA 8424, "An Act Amending The National Intemal Revenue Code, as Amended” Relative to the Withholding on Income Subject to the Expanded Withholding Tax and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding of Creditable Value-Added Tax and Other Percentage Taxes”, dated April 17, 1998, © BIR Ruling No, 316-2013 dated August 8, 2003, * Entitled “Increasing the Rates of Tax on Winnings in Jai-Alai and Horse-Racing and the share of the Government from the Sweepstakes Total Prize Fund”, approved June 7, 1997, Profile and Taxation of Selected Gambling and Betting Activities in the Philippines 9([NTRCTax Research Joural Vol. XXVILS Seplomber- Ociober 2015 deducted from the proceeds of the sale of tickets which shall be paid to the BIR in lieu of income tax. Presently, Section 190 of the NIRC, as amended, imposes a PhPO.10 documentary stamp tax (DST) on the sale of lotto tickets. If the cost of the ticket exceeds PhP1.00, an additional tax of PhPO.10 on every PhP1.00 or fractional part thereof shall be collected. From 2007-2013, the PCSO remitted to the BIR a total of PhP22.12 billion tax payments or PhP3.16 billion annually. Of the amount, 81% were DST payments on sweepstakes and lotteries and 19% came from the 5% prize fund tax. (Table 15) Table 15. PCSO’s TAX PAYMENT! (Amounts in Billion PhP) DST Prize Fund Tax noe (RA 7660) (RA 1169) ia 1.65, 0.38 2.03 1.97 0.46 2.35, 0.53 2.75 0.63 3.38 2.76 0.64 3.40 3.23 0.76 3.99 3.16 0.85 4.01 17,87 4.25 22.12 55 Ost 16 Source of basic data: PCSO. As for lotto and sweepstakes, the winnings from the PCSO are income tax- free pursuant to Section 24(B)(1) of the NIRC, as amended, G. Horse Racing Clubs, Horse Owners, Bettors and Winners As mentioned earlier the MJCI, PRCI and the MMTCI were previously liable to the franchise tax, in lieu of all national and local taxes, except the income tax and DST under their respective franchise laws. With the passage of RA 7716 as amended by RA 8241, the franchise tax was replaced by the VAT whereby said payment is distributed to NG, LGU, PTSI, PCSO, WC, and the DOH. On the other hand, there is controversy in relation to the imposition of 30% amusement tax based on gross receipts of the proprietor, lessee or operator of race tracks under Section 125(e) of the NIRC, as amended. It can be recalled that then Representative Alfredo Maranon III of the 3“ District of Negros Occidental accused operators of racing clubs of non-payment of amusement tax totaling to PhP8.4 billion from 1997 to 2002. The MJCI, on behalf of the horse racing clubs, contended that “Karen A. Capino, “Race Club Denies Tax Evasion Charges”, January 13, 2005, 20 Profile and Taxation of Selected Gambling and Beuting Activities in the Philippines[NTRC Tax Research Joural Vol. XXVILS Sepiember- October 2018 they are not liable to pay amusement tax because of their legislative franchises, which are considered as special laws that grant the three horse racing clubs the immunity from all taxes, except the franchise tax, income tax, and the DST. In the same vein, the BIR has affirmed in its RMC 5-96* that the “in lieu of all taxes” provision in the character of a franchise grantee is not affected by the VAT. The VAT merely replaced the franchise tax. In other words, the VAT (instead of the franchise tax) shall be in lieu of all taxes due from the franchise grantee. Similar to lotto tickets, the DST on horse race tickets amounts to PhPO.10 for every PhP1.00 worth of horse race ticket and additional PhPO.10 for each PhP 1.00 in excess of PhP1.00 per Section 190 of the NIRC, as amended, (On the other hand, every person who wins in horse racing is subject to the 10% tax on the winnings or dividends based on the actual amount paid for every winning ticket after deducting the cost of the ticket while the tax on the winnings from double, forecast/quenelle and trifecta bets, is subject to 4% as prescribed under Section 126 of the NIRC, as amended. In the case of owners of winning race horses, the tax shall be 10% of the prizes. These taxes shall be deducted on the dividends corresponding to cach winning ticket or the prize of each winning race horse owner and withheld by the operator, manager, or person in charge of the horse races before paying the dividends or prizes to the persons entitled thereto, From 2007-2013, government revenue from the three horse racing clubs totaled PhP9.49 billion or an annual average of PhP1.36 billion. More than half (57%) of the collection came from the DST, followed by the tax on winnings and prizes, 31%. The rest of collections were from the VAT and CIT. (Table 16) ‘Table 16. TOTAL TAX COLLECTION FROM HORSE RACING CLUBS BY TYPE OF TAX: 2007-2013 (Amounts in Million PhP) ; Tax on Winning Year cr vat ae pst Total 2007 3235 aI 443.49 74036 1335.71 2008 79.29 10.99 421.92 879.67 1,391.87 2009 19.57 28.36 397.87 705.44 1151.24 2010 7.82 64.61 415.60 802.87 1,290.90 2011 2645 13734 41106 790.82 1365.67 2012 303.15 232.22 396.87 762.29 1,694.53 2013 4141 98.97 412.05 710.50 1,262.93 Total 560.24 641.80 7,898.86 5391.95 9,492.85, ‘Average 80.03, 91.69 414.12 770.28 1,356.12 Share to Total 5.90% 6.76% 30.54% 36.80% 100.0% Note: Figures may not add up to total due to rounding, Source of basic data: BIR, * Entitled “Clarification of Issues Affecting Franchise Grantee under Section 117 of the Tax Code, as ‘Amended, under RA 7716, Otherwise Known as the “Expanded VAT Law”, January 15, 1996. Profile and Taxation of Selected Gambling and Betting Activities in the Philippines 21NTRC Tax Research Journal Vol. XXVILS September-October 2015 | D. Comparative Taxes Imposed on Selected Gambling and Betting Activities Table 17 summarizes the taxes imposed on the PAGCOR, PCSO and horse racing clubs in the country as well as on bettors and their winnings. As can be noted, the PAGCOR and its licensees as well as horse racing clubs, are subject to the CIT while the PCSO is exempt pursuant to Section 27 of the NIRC, as amended. On top of income tax, the PAGCOR and its licensees are likewise subject to the franchise tax while horse racing clubs are subject to the VAT, in lieu of the franchise tax, pursuant to Section 108(A) of the NIRC, as amended. The PAGCOR’s income from its casino, dollar pit, regular bingo and mobile bingo operations are subject to the franchise tax. Meanwhile, the PAGCOR’ income from other related operations including, but not limited to, licensed private casinos, traditional bingo, electronic bingo and other bingo variations covered by the authorities to operate issued to private operators; private poker and junket operations; slot machine demo units; and from other necessary and related services, shows and entertainment are subject to the CIT. The winners in horse racing and winning race horse owners are subject to the percentage tax on prizes. Lotto, sweepstakes and horse racing tickets are inclusive of the DST borne by the bettor and withheld by the PCSO and horse racing clubs and remitted to the BIR. Meanwhile, the winnings of casino players amounting to more than PhP10,000.00 are subject to final tax while the winnings from the PCSO and lotto and sweepstakes are exempt from tax pursuant to Section 24(B)(1) of the NIRC, as amended. Casinos are exempt from the VAT pursuant to the PAGCOR’s charter, PD 1869, which exempts casino franchise holders from all taxes, whether national or local, except the franchise tax. However, it may recalled that the BIR issued RR 16-2005" subjecting the PAGCOR to the 10% VAT. The SC upholds that subjecting the PAGCOR to the 10% VAT under RR 16-2005 is invalid for being contrary to RA 9337. Although RA 9337 introduced amendments to Section 108 of RA 8424 by imposing the VAT on other services not previously covered, it did not amend the portion of Section 108(B)(3) that subjects to zero percent rate services performed by VAT-registered persons to person or entities whose exemption under special laws effectively subjects the supply of such services to 0% rate. The PAGCOR is exempt from the payment of the VAT because its charter PD 1869, is a special law that grants petitioner exemption from taxes.” Lotto and horse racing tickets are inclusive of the DST. The said tax is being withheld by the PCSO and horse racing clubs and remitted to the BIR. *© Entitled “Consolidated Value-Added Tax Regulations of 2005”, dated September 1, 2005. *” PAGCOR v. the BIR, et.al. GR 172087, March 15, 2011. Profile and Taxation of Selected Gambling and Beiting Activities in the PhilippinesNTRC Tax Research Journal Vol. XXVIILS_September-October 2015 Table 17. COMPARATIVE TAXES IMPOSED ON GAMBLING AND BETTING ACTIVITIES Gambling and Betting Activities Casino | Sweepstakes | Horse Racing inves ob Tar (PAGCOR and and Lotto (Horse Racing Licensees PCSO) Clubs) | Ac Industey Payers (PAGCOR and Ficensed Casinos, PCSO, and Horse Racing Cab) eau 1. Corporate Income Tax v x ry See. 27, NIRC as amended 2 Franchise Tax/ VAT PD 1869/ Sec. 108(A) of NIRC, as vw x aa amended 3. Percentage Tax on Winnings /Tax on prize of owners of winning race horses x x See 126, NIRC as amended =| B. Betiors/Winners 4. DST: Sec. 4 of RA 1169 as amended (Sweepstakes) x v v Sec. 190, NIRC as amended (Lotto and Horse Race tickets) 3. Percentage Tax / Winnings in horse race x x Sec. 126, NIRC as amended © Final Withholding Tax on prizes of more than PhP1O,000.00 and other y x x winnings Sec. 2H BVI), NIRC as amended Notes: " - Franchise Tax on PAGCOR. = VAT on horse racing clubs. There seems to be unfair tax treatment between industry players in the identified gambling and betting activities. PhilRaCom Executive Director Andrew Rovie M. Buencamino expressed his opinion that horse racing in the country generates low gross sales because of high taxes. However, it is believed that the PCSO and PAGCOR are not heavily taxed due to their numerous mandatory contributions to the government that trickle down to the benefits of the Filipinos through economic and/or health assistance. In the same vein, to equalize tax treatment on winnings, the House of Representatives proposes the imposition of the tax on winnings obtained from Philippine lottery. Specifically, House Bill (HB) Nos. 4742°%, 4774" and * Entitled “An Act Imposing A Final Withholding Tax On Winnings Of Non-Resident Aliens And Non-Resident Filipinos From The Philippine Lottery And Other Games Administered By The PCSO”, Introduced by Hon. Anthony Rolando T. Golez, Jr. ” Entitled “An Act To Tax Twenty Percent Of Lotto Earnings, Ten Percent Of Which For Housing ‘And Another Ten Percent For Education And Prescribing Mechanism Thereof”, Introduced by Hon. Winston Castelo. [Profile and Taxation of Selected Gambling and Betting Activities in the Philippines 3NIRC Tax Research Journal Vol. XXVIL5 September-October 2015 impose a 20% tax on lotto winnings to generate revenue which would benefit more sectors. The said bills are justifiable as it is the only gambling/betting activity in the country which is not subject to the tax on winnings. Moreover, the winnings from lotto, or any other form of gambling or game of chance, are money that may be considered to be “easily eared”. However, some refinements may be made on the proposed bills as to specify the amount of PCSO winnings that will be subject to the proposed 20% final tax. The blanket application of the 20% final tax may be construed that even minor prizes will be subject to the proposed tax on lotto winnings."! Further, HB 4859* seeks to charge an entrance fee in Philippine casinos amounting to PhP3,500.00 for all Filipinos thereby amending Section 14(3)(b) of PD 1869. Presently under Section 14(3)(b) of PD 1869, Filipino residents with gross income of at least PhPS0,000.00 in the previous year, as certified by the BIR, are allowed to play in casinos. However, the said provision is neither observed nor imposed. Thus, the bill aims to discourage Filipinos from playing in casinos. The move to collect an entrance fee in Philippine casinos for all Filipinos is likewise supported. The provision under Section 14(3)(b) of PD 1869 prescribes that only Filipinos with gross income of at least PhPS0,000.00 in the previous year are allowed to play in casinos which sends a message that only those who are earning this amount can afford to engage in gambling activities. In Singapore, a US$100.00 entry levy valid for 24 hours and USS2,000.00 valid for 12 months is imposed on all Singaporeans and permanent residents before entering a casino which is meant to remind them that gambling is expensive and not a way to make a living. Also, Thailand’s Finance Minister Sommai Phase is proposing a casino entrance fee of US$150.00 on Thais and permanent residents to discourage ‘poor people’ from entering the casino and Permitting only those who are really interested in spending money inside the casino resort.* VI. CONCLUSION AND RECOMMENDATIONS Based on the discussions above, it is apparent that there is unequal tax treatment of casinos, lotteries and horse racing activities wherein horse racing clubs and bettors are saddled with more taxes. The bills relating to gambling and betting activities pending in “" Entitled “An Act Further Amending RA 8424, “Otherwise Known as “An Act Amending the National Internal Revenue Code, as Amended, and For Other Purposes” by Removing the Tax Exemption on Sweepstakes and Lotto Winnings in the Philippines”, introduced by Hons. Rufus B. Rodriguez and Maximo B. Rodriguez, Jr. “ TRC, “Consolidated Comments on HBs 4742, 4774, and 4831 July 29, 2011. * Entitled “An Act Imposing the Payment of Entrance Fee to Residents of the Philippines Who Patronize Casino introduced by Hon. Peter M. Unabia * Singapore Casino Regulatory Authority. “Renee Kingsley, “Finance Minister Wants Casino Approval in Thailand”, World Casino News, June 23, 2015. 4 Profile and Taxation of Selected Gambling and Betting Activities in the Philippines[MIRC Tax Research Journal Vol XXVILS September October 2013 Congress are meant to address the issue at hand, The proposal to charge an entrance fee in Philippine casinos amounting to PhP3,500.00 is supported since it would only be collected from those who have the financial capacity to splurge some money in the casinos. The proposed 20% final tax on lotto winnings is likewise supported for equity reasons considering that other forms of winnings are subject to the tax. Profile and Taxation of Selected Gambling and Betting Activities inthe Philippines 35