IMGL Magazine April 2022

Philippines licensing policy

tackling illegal offshore gambling, has been realized to any significant degree but industry insiders counsel that these are early days. Calvin Lim, President and CEO of DFNN told a recent Asean Gaming Summit webinar: “Regulators came up with an industry and job-saving strategy with the RGP remote gaming platform. It’s not been easy and challenges remain, but it has got us through a very challenging time. It takes time for regulation to be in place and enforced. Enforcement is the responsibility of a different government department and it takes time to get these things embedded. It’s not as simple as blocking all offshore online operations – there are also things like trade agreements with other countries to consider.” Limits on growth The KYC requirement that players should be tagged to a physical retail operation may appear to be big barrier, but there are other factors limiting the growth of remote gaming. The biggest of these is not related to gambling regulation as such: facilitating payments is the biggest source of friction in the emerging remote gaming industry. It remains difficult for operators to establish commercial banking arrangements when compared to unregulated players. The country’s presence on the FATF grey list due to AML deficiencies means international banks are likely to remain hesitant. Banking and payments are overseen by the Philippines Central Bank and they would have to come together with PAGCOR to align objectives. That said, PAGCOR’s remit to deliver government revenue from gaming should see a convergence between the interests of the private sector and the Central Bank. Extending the umbrella of payment gateways to remote onshore operators would go some way to levelling the playing field. Requiring the unregulated sector to register for payments would also provide a boost against the regulated industry’s most aggressive source of competition. After payments, the next most commonly cited barrier to growth is limits to marketing. Whilst venue-based operators have the benefit of a physical presence from which to promote themselves, they have been slower to take advantage of online marketing opportunities. They are also subject to restrictions on the promotions and incentives they can offer

which offshore competitors can ignore. That said, PIGO operations have boosted the onshore market overall. Payments and marketing may be the biggest brakes on expansion among existing operators, but there appears to be considerable headroom for new market entrants. There have been 21 PIGO licenses issued and the market has a long way to grow, but margins are slim. In the short- to medium- terms there is likely to be some consolidation in the sector. The Philippines is electing a new administration in May and this is also likely to bring some changes. The need to raise revenue remains, however, so most commentators are not predicting significant tightening of market conditions. In fact, some are forecasting an expansion in the regulated sector and a crackdown on revenue leakage offshore. A taxing question The biggest barrier preventing local operators from competing more effectively with their offshore competitors is tax. Depending on the vertical, PAGCOR levies tax of 47.5 percent or more of GGR and an additional five percent franchise tax is payable to the country’s Bureau of Internal Revenue. A remote gaming license is part of a venue-based gaming license so they too have to earn their part of GGR (currently 25 percent). There are also Local Government Unit (LGU) taxes which vary according to location. In total, this means an effective tax rate as high as 90+ percent meaning some verticals are unattractive to operators. Electronic bingo is a good example of a vertical where there is proven demand but zero takeup under PIGO. It is a popular land-based game, but a remote provider would pay 55 percent tax on GGR and 25 percent on land-based GGR meaning profits are slim. LGU taxes, the costs of software and hardware plus KYC etc. effectively rule out e-bingo as a regulated activity. Where there is over-taxation the market is ripe for illegal activity. Taxation on remote sports betting is currently 25 percent with Integrated Resorts which provide electronic games paying 47.5 percent up to US$2.5 million and 27.5 percent above that figure. For virtual sports it’s 47.5 percent but table streaming is much lower, especially VIP table streaming which is taxed at just 15 percent. As with experience in other jurisdictions, reducing the tax rate doesn’t necessarily

40 • IMGL Magazine • April 2022

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