The Supreme Court (SC) has affirmed with finality its decision issued last year which declared that the government’s imposition of a 5-percent franchise tax on gross bets from gaming operations of the Philippine offshore gaming operators (POGOs) is unconstitutional.
In an 8-page resolution, the Court denied the motion for reconsideration filed by the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) seeking the reversal of the said ruling.
It also directed the government to refund POGO licensees of the 5-percent franchise tax it collected from them under the Bayanihan 2 Law.
“It is evident that not to order a refund will result in injustice and inequity on the part of the POGO licensees. Thus, any amount that was collected from the POGO licensees based on the implementation of the Bayanihan 2 Law, and prior to the passage of Republic Act 11590 (An Act Taxing Philippine Offshore Gaming Operations) should be returned,” the SC said.
“All things considered, the Court finds no compelling reason to reverse and set aside the assailed decision. Thus, the motion for reconsideration must be denied with finality,” the Court added.
The SC also ordered that an entry of judgment be issued immediately in the case.
In its motion for reconsideration, the government through respondents DOF and the BIR, argued that the assailed tax issuances are valid as these were issued on the account of the expanded licensing and regulatory authority of the Philippine Amusement and Gaming Corp. (Pagcor).
The said respondents maintained that offshore-based POGOS are subject to franchise tax and income taxes. Furthermore, the DOF and BIR insisted that Sections 11 (f) and (g) of the Bayanihan 2 Law are not riders.
“After a judicious review of the allegations raised in the motion for reconsideration, the Court finds the same bereft of merit,” the SC ruled.
It can be recalled that on September 29, 2022, the Court declared Section 11 (f) and (g) of the Bayanihan 2 Law (An Act Providing for Covid-19 Response and Recovery Intervention and Providing Mechanism to Accelerate the Recover and Bolster the Resiliency of the Philippine Economy, Providing Funds Therefor, and For Other Purposes) as unconstitutional for being “riders.”
The decision stemmed from the petition for prohibition filed by offshore-based gaming operators Saint Wealth Ltd., Marco Polo Enterprises Ltd., MG Universal Link Ltd., OG Global Access Ltd., Pride Fortune Ltd., VIP Global Solutions Ltd., AG Interpacific Resources Ltd., Wanfang Technology Management Ltd., Imperial Choice Ltd., Bestbetinnet Ltd., Riesling Capital Ltd., Golden Dragon Empire Ltd., Oriental Game Ltd., Most Success International Group Ltd., and High Zone Capital Investment Group Ltd., assailing the constitutionality of the said provisions of Bayanihan 2 Law and related revenue issuances of respondents DOF and the BIR.
Section 11 (f) and (g) of the Bayanihan 2 Law provides a list of sources of fund to address the Covid-19 pandemic which include the amounts derived from the 5 percent franchise tax on the gross bets from POGOs and income tax, value-added tax and other applicable taxes on income from non-gaming operations earned by POGO operators, agents, service providers and support providers.
In deciding the case, the Court pointed out that the said provisions violate Section 26, Article VI of the Constitution which mandates that “every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof.”
The SC noted that the prohibition against riders “is to prevent hodge-podge or log-rolling legislation, and to ensure that all provisions of a statute have some reasonable relation to the subject matter as expressed in the title thereof.”
The SC noted that respondents—former BIR Commissioner Caesar Dulay and Former Finance Secretary Carlos Dominguez III—ven admitted that Bayanihan 2 Law is not a tax measure.
Thus, the Court held that the imposition of new taxes, “camouflaged as part of a long list of existing taxes, cannot be contemplated as an integral part of a temporary Covid-19 relief measure.”
Consequently, the SC said BIR Revenue Regulation No. 30-2020, Revenue Memorandum Circular No. 64-2020, Revenue Memorandum Circular No. 102-2017 and Revenue Memorandum Circular 78-2018, in so far as they impose franchise tax, income tax and other applicable taxes on off-shore based POGOs, are “null and void for being contrary to the Constitution and other relevant laws.”
Image credits: Mike Gonzalez via Wikimedia Commons CC BY-SA 3.0