PAGCOR Faces Loss of Major Tax Incentive

PAGCOR Faces Loss of Major Tax Incentive

Section 13 of the 1983 Presidential Decree in the Philippines created an “in-lieu-of-all-taxes” incentive that exempted several companies, including the Philippines Amusement and Gaming Corp. (PAGCOR) from a majority of their taxes. Now, more than 30 years later, this decree may be altered or appealed, putting PAGCOR and many other businesses at risk of losing major tax incentives.

Policies of Section 13 1983 Presidential Decree

The presidential decree was created to save some businesses the trouble of calculating complicated income taxes that were resulting in a loss of revenue and a lack of incentive for investment. In place of income taxes, the decree required these businesses to pay taxes on an annual basis. This not only made it easier for them to operate, it also saved the businesses a lot of money they now stand to lose.

PAGCOR, for instance, is currently required to pay 30 percent in income tax and a 5 percent franchise tax on its yearly income. This is more than fair considering the amount the organization generates.

What’s in Store?

If the proposed amendments are passed, then the changes will affect a majority of the incentives laid out by the presidential decree. Experts say the proposed amendments would affect no less than 51 of the tax incentives. These incentives are mostly beneficial to PAGCOR’s franchise sector, which is quite sizeable and lucrative. However, they will also make it more difficult for the organization to operate.

However, these amendments will also have certain benefits. For instance, PAGCOR may get its income tax rate reduced from 30 percent to 25 percent. This would also save it a sizeable amount of money. But, it would not be enough to make up for the lost incentives. It is, in fact, one of the reasons why the proposed amendments would consider removing the “in-lieu-of-all-taxes” incentive.

The Future is Uncertain

The proposed amendments are still in their initial phases and may take weeks or even months to review and implement, according to law experts in the Philippines.

As its Congress debates the amendments, Rolan L. Bentulan, a KPMG supervisor and auditor, believes any changes to the existing law are likely to undergo a massive overhaul once Congress is through with the bill debate. Confiding to GGRAsia.com, Bentulan is only hoping the lawmakers will take the time to consider all the pros and cons of the amendments to ensure they do not distort the market. However, despite the skepticism, Bentulan exudes little positivity by implying that despite the precedence, no one knows for sure what the outcome of the process will be.

Bentulan is not the only one who is not optimistic about the outcome. The proposed amendments have raised concern among many businesses and organizations that have, as a result, started lobbying against the amendments. The government, too, will be forced to review the impact on businesses and the economy as a whole. And, as a result, it will have to decide whether to ease the proposed cuts to the provided incentives.

However, the only sure thing about the ongoing congressional debate is that the playing field for the impacted businesses, including PAGCOR, will be different. Whichever way the debate goes, these businesses should be prepared to lose some of the incentives they have been enjoying for the past three decades.

About Philippines Amusement and Gaming Corp.

The Philippines Amusement and Gaming Corp. (PAGCOR) is an organization owned and controlled by the government. The organization was established in 1983 under Presidential Decree 1067-A and has grown to be the largest publicly owned corporation in the country. It ranks among the largest revenue contributors.  

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