Facts:
The Philippine Amusement and Gaming Corporation (PAGCOR), under its Charter (Presidential Decree No. 1869), is granted authority to operate and license gambling casinos and similar recreation or amusement places. In 2016, POGO Rules and Regulations were issued to regulate online gaming hubs, defining offshore gaming and requiring POGOs to register with PAGCOR. Multiple revenue memoranda were subsequently issued by the BIR to clarify the taxability of POGOs.
In response to the COVID-19 pandemic, the Philippine government enacted the Bayanihan 2 Law, providing for COVID-19 response and recovery interventions. Among its provisions, Sections 11(f) and (g) impose a five percent franchise tax on gross bets or turnovers earned by POGOs and taxes on income from non-gaming operations earned by offshore gaming licensees.
Saint Wealth Ltd., an offshore-based POGO licensee, together with other petitioners, filed consolidated petitions for certiorari and prohibition, challenging the constitutionality of Sections 11(f) and (g) of the Bayanihan 2 Law, RR No. 30-2020, RMC No. 64-2020, RMC No. 102-2017, and RMC No. 78-2018, collectively referred to as the Assailed Tax Issuances.
Issues:
1. Whether offshore-based POGO licensees are liable to pay a five percent franchise tax for income derived from their gaming operations.
2. Whether offshore-based POGO licensees are liable to pay income tax, VAT, and other applicable taxes for income derived from their non-gaming operations.
3. The constitutionality of Sections 11(f) and (g) of the Bayanihan 2 Law.
Court’s Decision:
The Supreme Court granted the consolidated petitions based on the following findings:
1. Before the enactment of RA No. 11590, there was no law that specifically imposed franchise tax, income tax, and other applicable taxes on offshore-based POGO licensees.
2. Section 11(f) and (g) of the Bayanihan 2 Law are unconstitutional as they introduce new tax impositions not germane to the temporary COVID-19 relief measure’s purpose, thus violating the “one subject, one title” rule of the Constitution.
3. The Assailed Tax Issuances (RR No. 30-2020, RMC No. 64-2020, RMC No. 102-2017, and RMC No. 78-2018) are declared null and void for being contrary to the Constitution and other relevant laws.
Doctrine:
1. The imposition of new taxes through legislation must be germane to the purpose of the law and clearly stated in its title, adhering to the “one subject, one title” constitutional requirement.
2. Tax regulations issued by administrative agencies must have a clear statutory basis; they cannot introduce new tax obligations not expressly authorized by law.
Class Notes:
– Taxation of POGOs requires clear legislative authority and regulation.
– The “one subject, one title” rule aims to prevent the inclusion of unrelated provisions in legislation to ensure clarity and prevent deceit in legislative processes.
– Administrative issuances exceeding statutory authorization or introducing new rules without a clear legal basis may be declared invalid.
Historical Background:
The regulation and taxation of POGOs mark a significant development in Philippine law, reflecting the country’s adaptation to digital economic activities and the challenges in aligning tax policies with emerging online enterprises. The case signifies the crucial interplay between legislation, taxation, and constitutional law in addressing the evolving landscape of international business operations and digital commerce.
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