Excise the POGO cancer
Credit to Author: Ben Kritz| Date: Wed, 27 Nov 2019 16:59:05 +0000
A controversy that should not have been allowed to pass as quickly as it did emerged earlier this month when Solicitor General Jose Calida issued an opinion that Philippine offshore gaming operations, better known as POGOs, cannot be subjected to income tax because they derive their income offshore. Almost everyone who does not profit directly from the POGO industry reacted with fury at this unwelcome bit of news, including this paper, whose editorial suggested that unless POGOs could be taxed, they are of little value to the country.
That is an eminently sensible point of view. POGOs are more trouble than they are worth for a number of reasons. While the Department of Finance (DoF) has confirmed that Calida’s opinion was, in fact, correct in a specific context — a conclusion that must have been arrived at reluctantly, given the tone with which it was shared with the public — that should not be regarded as a reason to accept the status quo. Instead, it is further justification to excise this peculiar cancer from the Philippine economy and communities plagued by these businesses and the people they have imported.
As for the specific issue of taxation, Finance Secretary Carlos Dominguez 3rd explained there are two kinds of POGOs: Philippine-based POGOs, who directly conduct online gambling operations and are subject to taxes on gambling revenue (including a 5-percent franchise tax); and foreign-based POGOs, who subscribe to games streamed by service providers based in the Philippines, and conduct gambling operations beyond these shores.
The latter POGOs, which are far more numerous, are not subject to taxes on the gambling revenues.
The Philippine Amusement and Gaming Corp. (Pagcor), the biggest advocate and ostensibly the regulator of the rapidly growing POGO industry, estimates that POGOs contribute about P200 billion to the Philippine economy annually. Earlier this year, the DoF disclosed that withholding tax collections from POGO workers — at least the 140,000 or so that have been properly registered, out of a mostly Chinese workforce reliably estimated at something upward of 200,000 — are about P2 billion a month.
Those are tangible benefits, but they are not worth the damage being done by letting this business expand uncontrollably. It is high time that some inconvenient and politically incorrect facts be pointed out:
POGOs are criminal enterprises
Strictly speaking, the POGO business in its current form is illicit in one way or another. The only reason so many Chinese POGOs are in business here is because their business is specifically outlawed in China; thus, they are skirting their own country’s laws. In doing that, they are also evading their own country’s taxes, and as the loophole exposed by Calida and confirmed by the DoF shows, taxes in this country as well.
There is also the not insignificant factor that much of the money churning through POGOs is being laundered, which is a big part of the reason China has outlawed gambling in the first place. The POGOs are very protective of their traffic data, so how much money is flowing and from where is impossible to determine without taking extreme steps to obtain the information, but anecdotally, better than 90 percent of the “foreign customers” are in China.
POGOs complicate PH-China relations
The Chinese government has, at least once, asked the Philippine government to ban online gambling, and suggested that the country should probably ban all forms of gambling. Even those here who oppose gambling and would like to see it outlawed viewed the Chinese request as overstepping sovereign bounds, and it probably was, but it should still make Philippine officials sit up and take notice. Just as it did in Macau, the Chinese government will clamp down on its citizens’ online gambling; the only reason it has not is because it has not yet figured out how to do that. When that happens, that will put the Philippine government, which has uncritically promoted and encouraged the POGO industry, in a very awkward position: It will either have to comply with Chinese demands, which won’t sit well with the Filipino people, or resist them, which will create a new source of tension with China.
Wrecking the Filipino way of life
As noted earlier, the POGO business has attracted 200,000 or more Chinese workers and investors to the country, to the detriment of the people already here. Stories abound of people losing long-held residences or business locations to Chinese occupiers with mountains of cash to spend; housing and commercial rental rates in areas where POGOs are present have skyrocketed. This has been good for the local property sector, but when the inevitable Chinese crackdown on the online gaming business happens, this bubble will burst, and burst explosively, with possible ramifications for the broader Philippine economy.
Those residents who have not been forced to flee have seen the quality of life in POGO-infested neighborhoods degrade rapidly. While it is neither polite nor accurate to tar all Chinese people with the same brush, the sort of people engaged in the POGO business are, frankly, horrible neighbors — rude, loud, untidy, and completely lacking in any obvious sense of social propriety. It should not come as a surprise. The Chinese government has, after all, at several times issued well-publicized admonishments to its own people to behave properly when visiting other countries. One can easily assume that the sort of people who are untroubled by the moral hazard of working in a sleazy business are exactly the sort of people to whom those warnings would apply, based on how they conduct themselves.
Pagcor, PEZA, the property sector and other advocates of the POGO industry have made a shaitan’s bargain on behalf of the Philippines. There may be a short-term gain from hosting these highly dubious enterprises, but it will not be sustainable, and the ultimate costs will be greater and take longer to overcome. The country doesn’t need this, and by cultivating it is only doing so at the expense of more respectable and more stable longer-term alternatives. The sooner the POGO business is removed, the easier it will be to recover from the loss of it.
ben.kritz@manilatimes.net
Twitter: @benkritz