The Pagcor money machine: Who spends what, and how?

The second part of the PCIJ’s two-part series tackles the persistent doubts, in relation to the ‘Tourism City’ project, about the transparency of financial transactions and decisionmaking processes in the Philippine Amusement and Gaming Corporation (Pagcor).

GLORIA MACAPAGAL Arroyo will go down in Philippine history as the president who made gambling the third biggest source of government revenues, after taxes and customs duties.

Under her watch over the last seven years, the Philippine Amusement and Gaming Corp. (Pagcor) has grown into a humongous money — and power — machine. Until now the monopolistic state gambling agency, Pagcor’s gross revenues of P13 billion in 2001 more than doubled to P26.83 billion in 2007, or an average annual growth of 18 percent.

This falls behind only the tax collections of P712.09 billion by the Bureau of Internal Revenue (BIR), and the Bureau of Customs’ (BOC) collections of P210.5 billion in 2007.

On parallel track, the President’s Social Fund (PSF) that serves as Arroyo’s fat political purse has recorded a steeper climb. Funded from Malacañang’s shares in Pagcor’s revenues, the PSF increased nearly 50 percent from P1.03 billion in 2006 to P1.42 billion in 2007.

That may increase some more should Pagcor’s latest venture, the $20-billion Tourism City that will rise on reclaimed land along Manila Bay, succeed. Pagcor’s “terms of reference” for the project boasts that Tourism City “could triple the annual income generation of Pagcor from $500 million to $1.5 billion, thus dramatically increasing the income of the National Government to whom all Pagcor revenues accrue.” (see sidebar)


In a recent interview with the PCIJ, Pagcor Senior Vice President Rene C. Figueroa qualified that “the government will have more money, not Pagcor,” on account of Tourism City.

Who spends and how?

But the Palace and Pagcor may have some serious explaining to do regarding the latter’s ever-increasing billions. The questions they need to answer include where Pagcor’s money goes, who spends it and how, and why the Commission on Audit (COA) and the BIR say Pagcor is not paying taxes correctly and fully.

Pagcor President Rafael ‘Butch’ Francisco, who also spoke with PCIJ last week, did say that of the agency’s gross earnings, 65 percent represents the government’s shares, franchise tax, and the PSF. This portion, he said, is automatically deducted from what Pagcor earns.

The 35 percent balance of Pagcor’s gross revenues goes to operating expenses, as well as into a so-called “community services fund” and allocations for various “confidential, intelligence, extraordinary and miscellaneous expenses,” and “subsidies and donations,” he added.

If the PSF runs dry, or a calamity or disaster strikes, Francisco said, Pagcor draws additional amounts from its “community service fund.”

But he admitted that for most of these funds, liquidation reports are not submitted to explain how Malacañang and the other agencies spend the amounts. Sometimes, he said, President Arroyo makes requests for donations, even before Pagcor could raise the money for these.

“Actually, minsan the Office of the President, (says) paki-donate naman dito. Ibig sabihin, hindi pa kumpleto ‘yung ano (collections) namin, naka-earmark na (Actually, sometimes the Office of the President says, please donate for this thing. That means even though we haven’t completed our collection, the money’s already earmarked),” Francisco said. “Kung minsan, nakikita namin kung saan napupunta, ‘yung iba hindi na namin nakikita na (Sometimes we see where it’s going, but the others we don’t).”

Pagcor has 12, 000 employees but in 2007, the agency reported operating expenses of P11.03 billion, up from P10.73 billion in 2006. Month on month, Pagcor’s operations bill amounts to P919 million on average, or about P30 million daily.

Unfortunately, the law is largely silent about how Pagcor, Malacañang, and other state agencies must account for how they spend Pagcor’s money. But laws do specify where Pagcor’s billions should go: to the national government through dividends and taxes, other state agencies, and yes, the PSF.

Half of Pagcor’s gross earnings, in fact, are to go to the national government. It must also pay five percent of gross earnings as franchise tax.

Other laws mandate Pagcor to set aside portions of its net earnings to the Philippine Sports Commission, host cities, and other government funds, including the Early Childhood Care and Development Fund, Gasoline Station Training and Loan Fund, Barangay Micro Business Enterprises, National Endowment Fund for Children’s Television, and other “mandated contributions.”

Winnings vs earnings

But the 2006 COA report on Pagcor reveals that Pagcor has not remitted to these smaller government funds a cumulative total of P719.77 million.

Opposition Senator Francis Escudero has taken Pagcor to task for computing its franchise tax against “winnings” and not against gross earnings. Based on its P22-billion “winnings” in 2007, Pagcor paid only P1.1 billion in franchise tax.

Escudero said Pagcor should have paid P1.34 billion, or P243 million more, based on its gross earnings of P26.85 billion last year.

The BIR, for its part, has insisted that the reformed Value-Added Tax law should apply and that Pagcor, a corporation, must pay 35-percent corporate tax, in lieu of a franchise tax. Pagcor has filed a suit with the Supreme Court to contest the BIR’s position.

Then there is Pagcor’s refusal to pay dividends to the national government, equivalent to half of its net income after taxes. Pagcor has argued that it should be exempted from paying dividends, on account of its franchise tax burden, and that every month of its operations supposedly starts with zero net earnings, and therefore it has nothing to remit.

Both arguments have been debunked by COA, citing a Department of Justice (DOJ) opinion that its payment of franchise taxes does not exempt Pagcor from paying dividends.

COA has refuted Pagcor’s claim of having nothing to remit as dividends. In 2005 and 2006, COA said, Pagcor earned a cumulative P1.87 billion, net of corporate income tax. COA has insisted that Pagcor must still pay half of this amount, or about P933 million as dividends due the national government for 2005-2006.

Pagcor has filed an appeal with the DOJ to reverse its opinion on Pagcor’s dividends obligation. Even more, Pagcor chairman Efraim Genuino also sent a letter to Malacañang, seeking guidance from the President, on the issue of whether or not Pagcor must be covered by the law on the dividends burden of government-owned and -controlled corporations.

The inquiry, COA said, has been referred to the Department of Finance for comment and advice.

Fast, vast expansion

By contrast, there is no question over how Pagcor has been raking in more and more money under the Arroyo administration.

In the last seven years, state-sponsored gambling in the country has expanded at great speed across geographical regions, games, and onsite and online platforms.

Pagcor today operates a virtual gaming kingdom: 13 casinos in major Philippine cities, eight VIP (very important person) clubs, three slot-machine arcades, 180 bingo parlors, and a lucrative Internet casino platform using prepaid cards.

Working with technology provider Philweb Corp. (a subsidiary of the Philippine Long Distance & Telephone Co.), Pagcor earned P138.5 million in 2005 just from its Basketball Jackpot and e-Casino Filipino games online.

These days, Philweb is among the growing list of corporations placing their bets on the success of Tourism City and seeking Pagcor’s approval to participate in the project.

Another local group that has expressed interest is Waterfront Philippines Inc., which is owned by the family of William T. Gatchalian, a close friend and adviser on overseas workers’ affairs of deposed President Joseph Estrada.

Pagcor insiders say there have also been several queries from overseas regarding how to be part of Tourism City, including those from a still unidentified but big U.S. gaming concern, and even “offers from Russians.”

For sure, Pagcor’s track record as a moneymaking machine has made its Tourism City venture look like a safe bet. Indeed, Pagcor has had a winning streak in business largely because it is a monopoly. From every peso of every bet made by gamers and gamblers — rich or poor, Filipino or foreigner, Pagcor takes a cut. That has not changed with its new charter, which has only enhanced its earning power some more and made the likes of Tourism City possible.

Three-pronged mandate

Pagcor was created in 1977 by then President Ferdinand E. Marcos, through Presidential Decree 1067-A, as a 100-percent government-owned and -controlled corporation. The agency acquired a 25-year charter on July 11, 1983 under Presidential Decree 1869, and was allowed continued existence by Marcos’s immediate successor, Corazon Aquino, as well as by subsequent presidents.

The charter assigned Pagcor with a three-pronged mandate: regulate all games of chance, particularly casino gaming in the country; raise funds for the governments’ socio-civic and national developmental efforts; and help boost the country’s tourism industry.

Under that old charter, though, Pagcor and Pagcor alone was allowed to run and operate legal gaming and gambling, and typically, in what are called “special economic zones.”

But since Pagcor was granted a new charter last year, it can now set up, subfranchise, and approve casino operations anywhere in the Philippines.

The caveat is that under the new charter, as it was in the old, Pagcor can do so only with the consent of local government units.

Still, chances are not one of the 11 local governments that have given their nod to Pagcor operations in their area is regretting its decision.

An official report obtained by the PCIJ showed that from 2004 to 2007, the 11 cities hosting Pagcor gaming outlets have received a four-fold average increase in their “share” from the agency’s revenues.

Manila tops the list, with “actual remittances” from Pagcor of P437 million from 2004 to August 2007; Pasay City, P196 million; Angeles City in Pampanga, P188 million; Cebu City, P187.5 million; Paranaque City, P172 million; Tagaytay City, P92 million; Davao City, P86 million; Olongapo City in Zambales, P78.5 million; Bacolod City, P74.5 million; Mactan in Lapu-Lapu City, Cebu, P64.5 million; and Laoag City in Ilocos Norte, P25.5 million. — with additional reporting by Tita C. Valderama