TRAIN: The horseracing killer

As if the horseracing industry isn’t facing enough challenges, the new tax reform law now threatens to spell the end of a sport and business that have existed for almost 150 years.

Republic Act 10963, the Tax Reform for Acceleration and Inclusion (TRAIN) law, went into effect last Jan. 1. A couple of its provisions directly affect racing through increases in the tax on prize winnings and the documentary stamp tax on wager tickets.

The pertinent sections of the law amend certain provisions of the National Internal Revenue Code of 1997 (NIRC).

TRAIN’s Sec. 5 amends Sec. 24 of the NIRC, which relates to the “rate of tax on certain passive income,” including “interests, royalties, prizes, and other winnings.” It imposes a “final tax” of 20 percent on, among other things, “prizes (except prizes amounting to Ten thousand pesos (₱10,000) or less which shall be subject to tax under Subsection (A) of Section 24; and other winnings (except winnings amounting to Ten thousand pesos (₱10,000) or less from Philippine Charity Sweepstakes and Lotto which shall be exempt), derived from sources within the Philippines…”

Sec. 63 amends Sec. 190 of the NIRC, which now reads: “Sec. 190. Stamp Tax on Jai-alai, Horse Race, Tickets, Lotto or Other Authorized Numbers Gam—On each jai-alai, horse race ticket, lotto, or other authorized numbers games, there shall be collected a documentary stamp tax of Twenty centavos (₱0.20): provided, that if the cost of the ticket exceeds One peso (₱1.00), an additional tax of Twenty centavos (₱0.20) on every One peso (₱1.00), or fractional part thereof, shall be collected.”

What effect does this have on racing? A racing insider explained, “Dividends are now reduced to 62 percent of the pot from 72 percent. Another way to look at it is, if the pot used to be P1 million, it is now only P900,000. And the 10 percent documentary stamp tax is now 20 percent.”

In other words, the tax on winnings and doc stamps went up and the dividends went down.

This, more than any other challenge, will drive the Philippine Thoroughbred industry to ruin. In fact, for over 10 years now, stakeholders have been pushing for a reduction in racing taxes because it will mean an increase in sales and thus more income for the government through direct and indirect taxes. A health racing industry also benefits the economy as a whole through the operation of its primary and dependent businesses.

The industry has been earning over P7 billion a year in gross sales on average the past several years, with direct revenue to the government of over P1 billion annually in direct taxes.

In 2017, industry sales hit over P7.37 billion. Taxed at 17 percent, the total revenue for government is more than P1.25 billion, an increase of P88 million or 7.56 percent from 2016’s 1.16 billion.

TRAIN and its tax increases on winnings and ticket doc stamps might create gains for the government in the short-term but will kill the industry in the long term. Not only does the government stand to lose a steady, reliable, P1 billion a year, it will also displace some 5,000 workers on racetracks, farms, and offices that rely on the industry for their livelihood.

The only entities that will benefit from the new tax scenario are the illegal bookies. It was estimated by law enforcement some years back that underground horseracing betting nets about the same amount as the legitimate industry.

Sometime in the mid-2000s, horseowner and then-Mandaluyong City mayor Benhur Abalos launched, along with the rest of the industry, an anti-illegal bookies campaign and received death threats for his efforts. Bookies will now be rejoicing as racing fans flock to place bets with them tax-free.

Last Monday (Jan. 15), a core group of racing stakeholders met to discuss the TRAIN law and its effects. Various strategies were crafted and will be pursued. Let us hope that the powers that be will see how badly racing will be impacted by this law and apply remedies to fix its infirmities.

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Dr. Ortuoste is a California-based writer and researcher. Facebook: Gogirl Racing and Jenny Ortuoste, Twitter: @gogirlracing and @jennyortuoste

Topics: train law , train bill , horseracing killer
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