Philippine Online Gaming: Hostage to China

A lucrative forex earner depends on keeping Beijing happy

Gaming and diplomacy are not obvious bedfellows, but between China and the Philippines their relationship has added further murk to the shady world of the Philippine Offshore Gaming Organizations, or POGOs, which cater to Chinese gambling online from the safety of their living rooms.

In principle, China has been cracking down on the use of offshore gaming centers which have been used for laundering of corrupt money and capital flight and generally offering services (including related prostitution) that are contrary to the official principles of the Communist Party.

Earlier this year, in a campaign that became public in late June, China’s Ministry of Public Security announced it had arrested more than 11,500 suspects, destroyed 368 gambling platforms and 148 technical programs and seized more than US$32 billion in a crackdown against operations in Vietnam and other Southeast Asian areas.

Cross border movements for such activities have anyway been curtailed by Covid-19 travel restrictions – though how rigorously they applied to gambling locations across the Laos and Myanmar borders is unclear.

The POGOs however are all on-line operators staffed largely by Chinese, mainly based in Manila. In principle, China should want them closed but has made no serious effort to do so as it did elsewhere. Meanwhile, the Philippines is torn between regulating and taxing them and concerns at the highest level that doing so will drive them away.

There is precedent enough that it should make Philippine officials nervous. In September 2019, apparently irritated Chinese officials pressured Cambodian Prime Minister Hun Sen to close gambling palaces in Sihanoukville that had turned the resort city into what was described as the “wild wild west,” a gaming mecca to rival Macau. Police arrested 127 Chinese nationals accused of running an illegal online gambling and extortion ring. Overnight, 300,000 Chinese nationals fled Sihanoukville, turning it into a ghost town and wrecking the city’s real estate market.

In the mix too is the ever-present issue of corruption and how it is used to avoid immigration laws and taxation. The most startling admission of this came last week when Foreign Secretary Teodoro Locsin claimed that some POGOs which had been pressed to pay taxes had already paid them “under the table.”

Locsin’s time at the Foreign Ministry has been associated with trying to maintain good relations with Beijing even as it has continued to expand its presence in Philippine EEZ waters and threatened its fishermen. Now he appears to be implicitly defending the POGO operators’ corrupt payments to Philippine officials.

A fully-fledged inquiry into Locsin’s allegation would seem in order but so far nothing has happened. What has been spotted however is that the Bureau of Internal Revenue has quietly changed key tax demands in a way which makes life easier for the POGOs. Specific dates for franchise tax payments have been removed, reference to “prior years” taxes been removed, and the escape phrase “if applicable” applied to withholding taxes.

There are about 60 POGOs licensed by the Philippine Amusement and Gaming Corporation (PAGCOR), and some 200 related service providers, all of which provide total employment of 130,000, mostly to mainland Chinese. In addition, there are believed to be a number of unlicensed operators who may be tolerated so long as they pay off the right people. They are shut down from time to time. On July 8 a raid on one in Makati saw the arrest of 50 people, mostly Chinese.

But licensed or not, the POGOs and related amusement activities provide a handy way of increasing the Chinese population as well as providing tenants for office and apartment block in the capital. As an example, 200 sq ft. condos that previously rented for PHP22,000in the Pasay area of Manila suddenly more than doubled to PHP47,000 and six months later as suddenly fell back to PHP30,000 as the POGOs began to close.

It can only be a matter of conjecture whether the BIR rule changes have any relationship to Locsin’s remarks, or are a response to fear that if pressed for more taxes, POGOs will pack up and go elsewhere. Presidential spokesman Roque noted: “We need them because we need the revenue.”

China, of course, knows that it can, if it wants to pull the plug on POGOs anytime so Beijing as well as the POGO operators have leverage with a government in Manila desperate for Chinese cash.

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