SC: Pagcor's gaming profits not subject to corporate income tax

by Ina Reformina, ABS-CBN News

Posted at Feb 19 2015 03:39 PM | Updated as of Feb 20 2015 05:15 PM

MANILA, Philippines - Income derived by the Philippine Amusement and Gaming Corporation (PAGCOR) from its gaming operations such as the operation and licensing of gambling casinos, gaming clubs, and similar amusement establishments, gaming pools and related operations shall not be subjected to corporate income tax.

The Supreme Court (SC) has ruled that despite amendments to the National Internal Revenue Code (NIRC), Presidential Decree No. 1869, also known as the PAGCOR Charter, remains in effect.

The PAGCOR charter states that its income from gaming operations shall only be subject to the five percent franchise tax, while what is subjected to corporate income tax is PAGCOR's income from the operation of its related services.

“[I]t would be the height of injustice to impose franchise tax upon [PAGCOR] for its income from other related services without basis... This is clear from the wordings of PD 1869, as amended, imposing franchise tax of five percent on [PAGCOR's] gross revenue or earnings derived by [PAGCOR] from its operation under the franchise in lieu of all taxes of any kind or form, as well as fees, charges or levies of whatever nature, which necessarily include corporate income tax," the decision, penned by Associate Justice Diosdado Peralta, read.

The BIR issued Revenue Memorandum Circular (RMC) No. 33-2013 after the high court upheld the constitutionality of Section 1 of Republic Act (RA) No. 9337, the law which amended portions of the NIRC, on March 15, 2011. Section 1 of RA No. 9337 excluded PAGCOR from the enumeration of government-owned or controlled corporations (GOCCs) exempted from corporate income tax.

RMC No. 33-2013 subjected PAGCOR to corporate tax for the operations and licensing of gambling casinos, gaming clubs, and similar amusement establishments, gaming pools and related operations.

The high court said that had Congress intended to withdraw PAGCOR's tax exemption, it could have done so by "expressly" amending the PAGCOR charter as "repeal of laws by implication is not favored."

"[T]here was no need for Congress to grant tax exemption to petitioner with respect to its income from gaming operations as the same is already exempted from all taxes of any kind or form, income or otherwise, whether national or local, under its Charter..." the decision read.

The high court ruled that RMC No. 33-2013 "constitutes an overreach on the part of the [BIR]," and that the BIR committed grave abuse of discretion in issuing the circular.