POGOs closing down due to pandemic

Iris Gonzales - The Philippine Star

MANILA, Philippines — Five Philippine offshore gaming operators (POGOs) and at least 10 of their local service providers have closed down in recent weeks as a result of the difficult business environment brought about by the coronavirus disease 2019 or COVID-19 outbreak, sources told The STAR.

Two weeks ago, five POGOs and their local service providers started handing pink slips to at least 2,000 Filipinos working as “live dealers”, I.T., admin and production staff for online gaming studios, an industry source has confirmed.

Aside from lost jobs, the closures also led to vacancies in three preferred POGO offices all located in Makati’s central business district.

These POGOs are not just China-based gaming companies. They include firms based in Macau and Europe.

The source said the pandemic exacted a heavy toll on licensed POGOs which were disallowed from operating during the lockdown. Prohibitive lease expenses, high overhead costs and inability to resume partial operations due to strict conditions imposed by the Bureau of Internal Revenue (BIR) could also be contributing factors for the closures, the source added.

Like most companies in the world, POGOs are not immune from the pandemic.

“Short on cash following three months of suspended operations, it won’t be surprising if more POGO firms and local service providers will close shop soon,” the source said.

The five shuttered online gaming firms represent roughly 11 percent of the 45 POGO companies currently operating in the country. Based on data from the Philippine Amusement and Gaming Corp. (PAGCOR), it has about 60 POGO licensees, but only 45 are active. There are also more than 200 service providers registered with the gaming regulator.

In an earlier interview, a property analyst warned of the negative impact of POGO closures on the real estate sector.

“It’s going to be the perfect storm for the property market,” David Leechiu, president and CEO of Leechiu Property Consultants, told The STAR.

He said both office and residential businesses would be adversely affected if they suddenly lose revenue from POGOs given the very challenging business environment due to COVID-19. But the bigger hit could be on the residential leasing sector since security deposits are limited.

Leechiu said that with additional taxes, POGOs may find the Philippines uncompetitive and just transfer to other territories which may then wipe out government’s income. Aside from generating taxes and gaming revenue share for government, he said POGOs spur related industries like real estate, automotive, tourism, hotels and others.

So far there are conflicting government positions whether POGOs could be held liable for franchise taxes over and above the two percent of gross gaming revenues it remits to PAGCOR.

The Department of Finance (DOF) insists that all POGOs are subject to a five percent franchise tax even if bets and winnings are paid outside the country. On the other hand, the Office of the Solicitor General earlier opined that foreign-based companies that generate income abroad are not subject to Philippine taxes.

Given conflicting policy interpretations, BIR Deputy Commissioner Arnel Guballa admitted facing legal difficulties imposing the franchise tax against POGOs.

The BIR required all POGO operators to first pay their franchise taxes and submit a notarized commitment to pay all arrears for prior years before they can resume partial operations during the lockdown.

So far, the BIR said no POGOs have been able to comply with the requirement.

Currently, POGOs occupy 1.7 million square meters of office space around the country and two million square meters of residential space.

Property companies believe it won’t be easy to just replace POGO tenants in case they leave. However, some industry players said they are ready to adapt should it happen.

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