Philippine and its local legal registered gaming operators (so-called POGOs) have been criticized by the Chinese government for offering real-money gambling games to Chinese players. One the other hand, the Philippine government also strongly condemns the POGOs for their criminal offence of tax evasion. Reportedly, the POGO tax evasion exceeds 200B pesos each year.
Pogo companies earn an enormous income from online gaming every year. However, the Philippine government and the public don’t benefit as much as expected from it. Out of 60 POGO licensees, only less than a dozen of them paid tax. A lot more of it should have been collected by the country is eventually lost.
What is the amount of POGO tax evasion per year?
According to the estimate of pwc Philippines, the Philippine government loses at least 200 billion pesos because of POGO tax evasion every year. Let’s have a closer look at how this number was estimated.
The taxes that POGOs need to pay includes the tax on winnings, withholding tax on compensation, franchise tax and income tax.
Tax on winnings
According to the analysis of pwc Philippines, “There is a strong legal basis to tax these winnings Philippine source” since almost all the business activities about offshore online gaming are conducted here in the Philippines. And the number of those uncollectible tax on winnings, which is 20% from the winnings will be P290 billion.
Withholding tax on compensation
According to the estimate of Collier International Group, the real estate service provider, the number of POGO employees is around 470,000. And most of them are Chinese. It is out of the question that at least 50% of them are without work permits. ”Assuming they only earn P30,000 a month, at an income tax rate of 20 percent, the leakage is easily more than P6 billion per year”. But in fact P30,000 is approximately equivalent to RMB4,300, which can barely cover the food and clothing in third-tier cities in China. If this is the case, who will travel thousands of miles from China to work in the Philippines. And it’s even against China’s laws.
The franchise tax POGO obligated has always been the centre of the dispute. However, among all the POGOs only 11 of them fulfilled their tax obligations. And the estimated franchise tax evasion alone from the undeclared POGO revenue is more than P15 billion per year.
“If POGOs made an estimated P286.7 billion (net of winnings of gamers) in 2019, reduce that by 50 percent for expenses. We can still earn 15 percent withholding tax or P20 billion on dividends that are constructively remitted from the accounted amounts alone (excluding the substantial unreported amounts).”
This assumption is similar to the tax on winnings above. Since POGOs are mainly operating on the land of the Philippines, they should be the subject of income tax.
What’s the next step for POGOs.
As far as the status quo is concerned, the Philippine government and POGOs are in a deadlock. Meanwhile, the POGOs have already started their business expansion to the western market. We often receive inquiries from Asian gaming companies on how to develop a gaming business in Europe. Can their “bad reputation” of not paying taxes be reasonably improved by the sound legal framework of online gaming in Europe? First of all, they need to hire professional tax and corporate compliance experts in Europe.
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