Prices push POGO exodus

While kidnappings and illegal immigration make for unwelcome headlines for the Philippines’ online gaming industry, what’s really driving recent departures from the country is the rising cost of doing business, especially during an economic downturn.

The Philippine Offshore Gaming Operator licenses have been a cash cow for the government since they were introduced in 2016 in response to newly elected President Rodrigo Duterte’s call to clean up the industry. 

Anyone applying for the license needs to pay $150,000 in processing fees for an e-casino and $200,000 for the license. The company will have to pay $300,000 for a security bond and will need to renew the license every three years for $150,000. The figures are slightly lower for sports betting operations. 

The fee is then 2 percent of gross gambling revenue that must be submitted to the Philippine Amusement and Gambling Corp, which has a mandate to submit 50 percent of its income to nation-building projects. 

In 2019, revenue from POGOs hit P5.73 billion ($115 million), up from P73.72 million in 2016, the first full year of operation. Accumulated revenue from licensing fees up until March this year has been P20.83 billion. In terms of taxes, the firms paid P14.28 billion in 2019, with P6.42 billion coming in the form of direct taxation. 

However, it doesn’t stop there and some POGOs are now voting with their feet. In recent months, three firms linked to SunCity Group have left the country and in total about 11 are thought to have left, with more reportedly eyeing the door.

According to industry experts in the Philippines, the issue is the cost of doing business, with the government seen to be getting greedy. With the huge volumes wagered through the POGOs, some elements of government, including the tax department, debate they are not getting their fair share.

The Bureau of Internal Revenue wants the POGOs to pay a 5 percent franchise tax on revenue, while they are also expected to remit withholding taxes on salaries paid to employees. The BIR had also insisted on the payment of back taxes as a requirement for companies to restart operations after the lockdown, though it now appears that it is easing its stance in this area. 

“If you compare the percentage/amount of the PAGCOR POGO levies and these taxes with other top-tier licensing jurisdictions, what is being expected to be paid by online gaming operators and providers in the Philippines is way above what they will pay if they are licensed elsewhere,” one leading industry figure said, on condition of not being named. 

Another industry insider credited the POGO license as being one of PAGCOR’s best ideas, but also said the industry was now being unfairly squeezed for more. While Philippine-based workers should pay some form of income tax, it’s entirely unclear why POGOs should pay on their worldwide income, especially as this was not the case when they first applied for the license. 

“The senators/politicians who have jumped on the anti POGO/Not paying tax bandwagon are in essence either unaware of how much “officially” POGOS pay PAGCOR or are angry at having been left out of the pie distribution in the first place,” he said, again asking not to be named due to the sensitivity of the subject. 

 “Fact is they make quite a considerable contribution, problem is where does all that “contribution” go.

As well as the taxes and fees, POGOs operating in the country face other hidden and rising costs. The office rentals in Manila have soared, though there is little opportunity for companies to relocate as the internet and social infrastructure in most other areas of the country is inadequate. According to PAGCOR figures, POGOs have generated some P25 billion in leaseholds and rentals.

There are also costs linked to employee visas, with hefty charges to “fast-track” permits as well as other payments necessary to smooth the path of doing business. 

Many politicians are also taking advantage of a wave of anti-POGO sentiment among the public to press their political agendas. The massive influx of Mainland Chinese have pushed prices in central Manila out of the reach of locals and created a Chinese sub-culture to the detriment of Filipinos.

The resentment reached such a level that earlier this year PAGCOR issued an advisory explaining the work of POGOs and how they benefit local society. It includes explanations as to how the regulator is working with the Chinese Embassy to stamp out illegal immigration and criminal activities and also contained a denial of reports that members of China’s Peoples Liberation Army had entered the country as spies. 

PAGCOR pointed out that the sector actually employs some 31,556 Filipinos directly, with many more being employed in ancillary sectors, such as real estate and entertainment. 

Earlier this month, the BIR eased some tax requirements that it had imposed as a condition for the POGOs to reopen, in particular with regard to back taxes, though it remains to be seen whether it’s too little too late and who the beneficiaries will be.