SC upholds finding that BIR exceeded its authority in 5% POGO franchise tax circular

THE Supreme Court (SC) voided a circular issued by the Bureau of Internal Revenue (BIR) along with parts of the Bayanihan II law that imposed a 5% franchise tax on gross bets placed with Philippine Offshore Gaming Operators (POGOs).

In a 10-page resolution dated Jan. 10 and made public on May 3, the tribunal said there was no law authorizing the BIR to impose the franchise tax on POGO firms when the circular was issued in 2017.

“It is likewise invalid and unconstitutional because it effectively amended the Philippine Amusement Gaming Corp. Charter when it imposed taxes on entities not taxed under the law,” according to the resolution.

The Supreme Court said the BIR encroached on the authority of Congress to pass tax measures into law.

The ruling effectively rejects an appeal filed by former Finance Secretary Carlos G. Dominguez III and former Internal Revenue Commissioner Ceasar R. Dulay.

The court noted that the passage of Republic Act No. 11590, which governs the taxation of offshore gaming operations, had rendered the appeal moot since the law imposed a 25% income tax on POGO firms.

The plaintiffs had argued that the tax regulations were valid as offshore gaming companies should be subject to franchise and income taxes.

The case stemmed from POGOs asking the tribunal to void the BIR regulation and Section 11 (F) and (G) of the Bayanihan II law, which had imposed the franchise tax.

In 2021, the BIR said the government collected P4.4 billion in taxes from POGOs in the eight months to August, up from P3.91 billion in 2020. The amount was significantly lower than pre-pandemic projections of P32.1 billion for 2021.

“All things considered, the court finds no compelling reason to reverse and set aside the assailed decision,” the High Court said. “Thus, the motion for reconsideration must be denied with finality.” — John Victor D. Ordoñez