May 14, 2014

PAGCOR crafts interim deal with casino operators

In a disclosure to the Exchange, Travellers International Hotels Group (RWM) said the Philippine Amusement and Gaming Corp (PAGCOR) has entered into a temporary arrangement with RWM, Bloomberry Resorts and Hotels Inc (BLOOM), MCE Leisure (Phils) Corp (MCP), and Tiger Resorts Leisure and Entertainment Inc to reduce license fees by 10-percentage points effective 1 Apr 2014. This is to offset the 30% corporate income tax that the Bureau of Internal Revenue wants to impose on these firms.

To recall, the BIR issued on 1 Apr 2013 a revenue memorandum circular imposing the corporate tax rate on gaming operators after the Supreme Court ruled that PAGCOR is not exempted from paying corporate income tax. As a consequence of the ruling, PAGCOR cannot extend the corporate income tax exemption to its licensees. However, its agreement with the licensees specifically stated that the licenses fees it will collect from them will be in lieu of all other taxes. PAGCOR has filed for a motion of reconsideration of the court ruling. Until the case is finally settled, the interim deal will be followed. For the taxable periods prior to 1 Apr 2014,

PAGCOR and the licensees have agreed to carry out the original commercial terms of the license (i.e, the fees paid to PAGCOR are in lieu of all other taxes) under arrangement acceptable to all parties.

Our take: Our quick estimates show that a 10-percentage point decrease in license fees on gross gaming revenues will be adequate to offset a 30% corporate net income tax. This development would lift a significant overhang that has been hounding the industry for the past year.

Moreover, this should restore the competitiveness of Philippine gaming outfits as the lower taxes and fees on Philippine gaming companies can be used to lure more VIP players and foreign nationals into their facilities through increased incentives and promotions. While this is a huge positive development for the whole industry, this could be more beneficial to BLOOM in the short run as it still has a lot of NOLCO incurred over the previous year to offset income tax to be paid this year. – WealthSec