POGO paradise gets popped by pandemic

by Elijah Felice Rosales – The Philippine Star, 4 Oct 2021

Special Report:

MANILA, Philippines — They say when the going gets tough, the tough get going. No matter how battered the economy was during the pandemic, industries like business process outsourcing (BPOs) and electronics chose to stay here. Philippine offshore gaming operators (POGOs), however, left.

As a result of their exodus, the economy racked up losses of as much as P15.85 billion last year. This could go up to P17.73 billion in 2021 based on government and industry data.

According to state-run Philippine Amusement and Gaming Corp. (PAGCOR), at least 28 POGO licensees have abandoned their operations and properties here since the onset of the pandemic in March 2020.

PAGCOR acting assistant vice president for offshore gaming licensing Victor Padilla Jr. told The STAR that revenue from POGOs fell by nearly 25 percent to P5.28 billion last year from P7.01 billion in 2019. For 2021, the agency expects income to decline to P3.39 billion, piling up P5.36 billion in losses in a span of two years.

Leechiu Property Consultants Inc. (LPC) CEO David Leechiu said POGOs have either cleared out or left idle 875,000 square meters of office spaces 18 months into the pandemic. At a price point of P1,200 per sqm, the property market drops P1.05 billion in revenues a month, accumulating to P12.6 billion a year.

Leechiu said the government also misses out on P1.51 billion annually from the 12 percent VAT slapped on office spaces formerly rented by POGOs.

Padilla said POGOs that asked for the cancellation of their licenses had struggled to keep their branches afloat, as the shifts to lockdown stopped them from resuming activities, while border restrictions barred the entry of foreign workers.

“With all this taken into consideration, some licensees decided that they could no longer sustain their operations and eventually decided to close down,” Padilla said.

Based on exit dialogues with POGOs, most of the firms that left the Philippines relocated to regional neighbors Cambodia, Laos and Vietnam, to as far as Dubai. Padilla said PAGCOR expects these POGOs to stay in their new locations for good.

Last month, President Duterte signed Republic Act 11590, mandating POGOs to pay a gaming tax of five percent of their gross income. The law also allows PAGCOR and economic zone regulators to collect regulatory fees of up to two percent from their licensees.

It also charges foreign workers in POGOs a withholding tax of 25 percent on their gross salary, and penalizes firms P20,000 for every employee found without a tax identification number.

Sen. Pia Cayetano, who filed the measure in the Senate, said the law could bring in P32.1 billion in taxes in 2022, citing estimates from the Department of Finance.

As of August, PAGCOR regulates 41 POGO licensees and 133 service providers, most of which occupy buildings in Bay Area, Makati City and Alabang.

Janlo de los Reyes, head of research and consultancy at JLL Philippines, said the country may Special Report: reignite POGO interest once the government contains the spread of the virus. In the meantime, office space owners try to survive without POGOs by adjusting payment schedules.

“We’re seeing variance across landlords and geographies with regard to their response to buoy office occupancy. These are a mix of lowering rentals, flexible payment terms, accommodating interim demand, optimizing costs, shorter lease terms, among others,” De los Reyes said.

Similarly, PAGCOR’s Padilla said POGOs who fled during the pandemic may stick to their new sites for good, admitting that the Philippines would no longer see the same volume of POGOs that it hosted in 2019.

“Once they have relocated to another country and found a more conducive business climate for them, then it is very unlikely that they will return to our country,” Padilla said.

To woo new POGOs, LPC’s Leechiu said the government should not only lift the travel ban on foreign visitors, but also hope that Beijing resumes the issuance of passports.

In July, Chinese authorities stopped processing and renewing passports for non-urgent travels to minimize the transmission of new variants, particularly Delta. Only select flights, for the purpose of business, work or study, were authorized to proceed.

In spite of the pessimism, Leechiu said policymakers can never dismiss the economic impact of POGOs on real estate and revenue collection. Before the pandemic, POGOs leased 1.67 million sqm of office spaces, worth more than P25 billion yearly, in Metro Manila and other urban centers.

Leechiu said the challenge now lies in enforcing the taxation on POGOs to make sure that they pay what they owe to the government as required by the law.

As the government and property owners wish that POGOs return to the country, certain groups would rather that they stay out due to criminal risks that come with any gambling activity.

In voting against the Cayetano bill, Sen. Francis Pangilinan said the costs outweigh the benefits in taxing and legalizing POGOs due to multiple incidents involving their foreign workers in digital prostitution, human trafficking, immigration bribery, kidnapping and even murder.

In January, Chinese-Filipino civic leader Teresita Ang-See said over 100,000 Chinese workers in the Philippines received their vaccine doses by as early as November last year. At that time, the Food and Drug Administration has yet to approve any vaccines for the country.

In 2019 the Department of Labor and Employment issued 123,649 alien employment permits to POGOs, of which nine in every ten were released to Chinese nationals. In contrast, only 31,556 Filipinos were working in POGOs back then, raising the question on whether the industry gives enough jobs to locals.

Some of them require their Filipino staff to work beyond the usual eight hours. A 26-year old who worked for a Bay Area-based POGO for four years said he delivers 13 hours of duty daily. In a month, he gets just four days of rest.

When his grandmother died, he was prohibited from leaving the office to mourn with his family. Her Chinese boss said the checkpoints placed in provincial borders may complicate his travel to and from home. A day after missing his grandma’s funeral, he resigned.