PAGCOR v. BIR

Doctrines: 

• PAGCOR’s income is classified into two (2): (1) income from its operations conducted under its Franchise, pursuant to Section 13(2)(b) thereof (income from gaming operations); and (2) income from its operation of necessary and related services under Section 14(5) thereof (income from other related services) 
• Under PD No. 1869, as amended, petitioner is subject to income tax only with respect to its operation of related services. Accordingly, the income tax exemption ordained under Section 27(c) of RA No. 8424 clearly pertains only to petitioner’s income from operation of related services 
• The grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax. 
• Where a general law is enacted to regulate an industry, it is common for individual franchises subsequently granted to restate the rights and privileges already mentioned in the general law, or to amend the later law, as may be needed, to conform to the general law. 
• When petitioner’s franchise was extended on June 20, 2007 without revoking or withdrawing its tax exemption, it effectively reinstated and reiterated all of petitioner’s rights, privileges and authority granted under its Charter. 
• It is settled that where a statute is susceptible of more than one interpretation, the court should adopt such reasonable and beneficial construction which will render the provision thereof operative and effective, as well as harmonious with each other. 
• The SC upholds its earlier ruling that Section 1 of RA No. 9337, amending Section 27(c) of RA No. 8424, by excluding petitioner from the enumeration of GOCCs exempted from corporate income tax, is valid and constitutional 

Facts: On April 17, 2006, petitioner filed a PetRev on Certiorari and Prohibition seeking the declaration of nullity of Sec. 1 of RA No. 9337 insofar as it amends Sec. 27(c) of RA No. 8424 by excluding petitioner from the enumeration of GOCCs exempted from liability for corporate income tax (CIT).  SC partly granted the petitioner. Sec. 1 of RA No. 9337 is valid while BIR RR No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to the NIRC of 1997, as amended by RA No. 9337. 

Both petitioner and respondent filed their respective motions for partial reconsideration but the same were denied.

On April 17, 2013, respondent issued RMC No. 33-2013 which clarifies the “Income Tax and Franchise Tax Due from the PAGCOR, its Contractees and Licensees.” Accordingly, PAGCOR’s income from its operations and licensing of gambling casinos, gaming clubs and other similar recreation or amusement places, gaming pools, and other related operations, are subject to corporate income tax under the NIRC, as amended. This includes, among others: 

a) Income from its casino operations;

b) Income from dollar pit operations;
c) Income from regular bingo operations; and
d) Income from mobile bingo operations operated by it, with agents on commission basis. Provided, however, that the agents’ commission income shall be subject to regular income tax, and consequently, to withholding tax under existing regulations. 

Income from “other related operations” includes, but is not limited to: 

a) Income from licensed private casinos covered by authorities to operate issued to private operators; 

b) Income from traditional bingo, electronic bingo and other bingo variations covered by authorities to operate issued to private operators; 

c) Income from private internet casino gaming, internet sports betting and private mobile gaming operations; 

d) Income from private poker operations;
e) Income from junket operations;
f) Income from SM demo units; and
g) Income from other necessary and related services, shows and entertainment.

PAGCOR’s other income that is not connected with the foregoing operations are likewise subject to corporate income tax under the NIRC, as amended. 

PAGCOR’s contractees and licensees are entities duly authorized and licensed by PAGCOR to perform gambling casinos, gaming clubs and other similar recreation or amusement places, and gaming pools. These contractees and licensees are subject to income tax under the NIRC, as amended. 

PAGCOR is also subject to 5% franchise tax of the gross revenue or earnings it derives from its operations and licensing of gambling casinos, gaming clubs and other similar recreation or amusement places, gaming pools, and other related operations as described above. 

Petitioner wrote to the CIR requesting for reconsideration of the tax treatment of its income from gaming operations and other related operations under RMC No. 33-2013 but it was denied.

Petitioner filed a Motion for Clarification alleging that RMC No. 33-2013 is an erroneous interpretation and application of the aforesaid Decision.

Issues:

1. Whether PAGCOR’s tax privilege of paying 5% franchise tax in lieu of all other taxes with respect to its gaming income, pursuant to its Charter — P.D. 1869, as amended by R.A. 9487, is deemed repealed or amended by Section 1(c) of R.A. 9337. 

2. If it is deemed repealed or amended, whether PAGCOR’s gaming income is subject to both 5% franchise tax and income tax. 

3. Whether PAGCOR’s income from operation of related services is subject to both income tax and 5% franchise tax. 

4. Whether PAGCOR’s tax privilege of paying 5% franchise tax inures to the benefit of third parties with contractual relationship with PAGCOR in connection with the operation of casinos.

Held: SC sustained petitioner’s contention that its income from gaming operations is subject only to 5% franchise tax under PD No. 1869, as amended, while its income from other related services is subject to CIT pursuant to PD No. 1869, as amended, as well as RA No. 9337. 

Under P.D. No. 1869, as amended, petitioner is subject to income tax only with respect to its operation of related services. Accordingly, the income tax exemption ordained under Section 27(c) of RA No. 8424 clearly pertains only to petitioner’s income from operation of related services. Such income tax exemption could not have been applicable to petitioner’s income from gaming operations as it is already exempt therefrom under PD No. 1869, as amended.

The grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax. This is the most sound and logical interpretation because petitioner could not have been exempted from paying taxes which it was not liable to pay in the first place. This is clear from the wordings of PD No. 1869, as amended, imposing a franchise tax of 5% on its gross revenue or earnings derived by petitioner from its operation under the Franchise in lieu of all taxes of any kind or form, as well as fees, charges or levies of whatever nature, which necessarily include corporate income tax. 

In other words, there was no need for Congress to grant tax exemption to petitioner with respect to its income from gaming operations as the same is already exempted from all taxes of any kind or form, income or otherwise, whether national or local, under its Charter, save only for the 5% franchise tax. The exemption attached to the income from gaming operations exists independently from the enactment of RA No. 8424. To adopt an assumption otherwise would be downright ridiculous, if not deleterious, since petitioner would be in a worse position if the exemption was granted (then withdrawn) than when it was not granted at all in the first place. 

Where a general law is enacted to regulate an industry, it is common for individual franchises subsequently granted to restate the rights and privileges already mentioned in the general law, or to amend the later law, as may be needed, to conform to the general law. However, if no provision or amendment is stated in the franchise to effect the provisions of the general law, it cannot be said that the same is the intent of the lawmakers, for repeal of laws by implication is not favored. 

When petitioner’s franchise was extended on June 20, 2007 without revoking or withdrawing its tax exemption, it effectively reinstated and reiterated all of petitioner’s rights, privileges and authority granted under its Charter. Otherwise, Congress would have painstakingly enumerated the rights and privileges that it wants to withdraw, given that a franchise is a legislative grant of a special privilege to a person. Thus, the extension of petitioner’s franchise under the same terms and conditions means a continuation of its tax exempt status with respect to its income from gaming operations. Moreover, all laws, rules and regulations, or parts thereof, which are inconsistent with the provisions of PD 1869, as amended, a special law, are considered repealed, amended and modified, consistent with Section 2 of RA No. 9487. 

In fine, we uphold our earlier ruling that Section 1 of R.A. No. 9337, amending Section 27(c) of RA No. 8424, by excluding petitioner from the enumeration of GOCCs exempted from corporate income tax, is valid and constitutional. 

Respondent is ordered to cease and desist the implementation of RMC No. 33-2013 insofar as it imposes: (1) corporate income tax on petitioner’s income derived from its gaming operations; and (2) franchise tax on petitioner’s income from other related services.