CHINA signaled a crackdown on cross-border gambling after alleging that many its nationals working in the Philippine offshore gaming industry were recruited illegally.

The Chinese embassy also pushed back on the gaming regulator’s plans to confine Chinese offshore gaming workers, employed by firms known as Philippine Offshore Gaming Operators (POGOs), to designated “hubs,” saying that such plans may “infringe on the basic legal rights of Chinese citizens.”

“The Ministry of Public Security of China has taken many actions and will carry out more special operations aimed at preventing and combating cross-border gambling,” the Chinese Embassy in the Philippines said in a statement Thursday.

Gambling is illegal in China, and Chinese gamblers must travel overseas or visit special economic zones like Macau to gamble. In recent years, they have also been able to gamble online following the explosive growth of the country’s POGO sector.

It was not clear whether the Chinese also intend to restrict travel by gamblers overseas, which could hurt operators of physical casinos.

The statement from the embassy follows a proposal from Philippine Amusements and Gaming Corp. vice president Jose S. Tria, Jr. on Tuesday to confine POGO firms to designated hubs, which will be “self-contained.”

This came as the Bureau of Internal Revenue (BIR) continues efforts to increase collection of remittances, reporting on Thursday an initial P186 million in withholding taxes collected from Philippine Offshore Gaming Operators (POGOs) and some P170 million expected this month in tax payments from businesses employing foreign nationals.

The Embassy said Chinese citizens overseas must observe local laws and regulation and China prohibits them from engaging in illegal activities in foreign countries.

It said Chinese law allows the prosecution of Chinese companies or individuals overseas engaged in illegal activity.

“The casinos and offshore gaming operators (POGOs) and other forms of gambling entities in the Philippines target Chinese citizens as their primary customers,” the embassy said.

“A large number of Chinese citizens have been illegally recruited and hired in the Philippine gambling industry,” it added, noting some Chinese nationals are “cheated” in the process of being brought to work in the Philippines, entering with tourist visas.

It said the presence of overseas gambling hubs has also resulted in the illegal transfer overseas of “hundreds of millions of Chinese yuan every year” while increasing social problems in the Mainland.

It called the work conditions of some Chinese nationals “modern slavery.”

The President’s spokesperson Salvador S. Panelo said the Philippines will not allow the rights of Chinese to be violated, and encouraged China to file complaints against companies illegally employing Chinese citizens.

Senator Emmanuel Joel J. Villanueva, who chairs the committee on labor, employment and human resources development, supported the planned crackdown, which he noted is in line with his resolution to investigate POGOs.

“Earlier this week, we filed a resolution seeking an inquiry in aid of legislation on the influx of illegal foreign workers, especially in POGOs, and the impact of POGOs to the country’s economy, job generation efforts, peace and order, among other concerns,” Mr. Villanueva told reporters via mobile phone.

The Bureau of Internal Revenue (BIR) has been seeking to register POGO workers in order to effectively tax them, saying that it sent out 48 notices, directing POGOs to remit withholding taxes on the salaries of their foreign workers.

Finance Assistant Secretary Dakila Elteen M. Napao said out of the 48 notices, 22 companies replied or protested the tax assessment.

“The BIR, though, has already collected P186 million from the notices sent out and is set to collect another P170 million moving forward. This started last month and will be collected on Aug. 10,” Mr. Napao was quoted as saying in a statement Thursday.

Commissioner Caesar R. Dulay has said the BIR collected only P175 million in 2017 during the initial year of operation of POGO firms, rising to P579 million in 2018, and P789 million in the first half of 2019.

Finance Secretary Carlos G. Dominguez III said in a mobile phone message on Thursday that the BIR is “simply implementing the Tax Code, and requiring those earning Philippine-sourced income to pay income tax.”

Asked to comment, Unicapital Securities, Inc. Technical Analyst Cristopher Adrian T. San Pedro and Regina Capital Development Corp. Equity Analyst Rens V. Cruz II both said the property sector is expected to suffer the most in the crackdown.

“I think we have to monitor the property sector particularly (DD, MEG, ALI and SMPH) given this might have an impact in their office space revenues,” Mr. San Pedro told BusinessWorld via text message. He was referring to DoubleDragon Properties Corp., Megaworld Corp., Ayala Land, Inc., SM Prime Holdings, Inc.

“Moving forward I still expect the POGO industry to grow and help the influx of Chinese nationals in the country and assuming this will be the start of a more strict (period of) government regulation, I think this will be beneficial for the PH gov’t (for tax collections) and the property sector revenue (office space and residential) in the medium term.”

Mr. Cruz, likewise, sees the property sector, particularly “bigger developers” to be most affected, but noted that some companies have already begun preparing for a crackdown prior to the Embassy’s pronouncement.

“Obviously, the heaviest weight will fall upon the property sector, especially the bigger developers with a substantial portion of their income derived from POGO leasing. But even with an expected near-term pressure, there is still reason to believe it won’t be the worst-case scenario,” Mr. Cruz said in a separate text message.

“For starters, the existing restriction on foreign ownership applies to leasing too, leaving POGO to about 40% of the recurring income, at best. Second, local firms have pro-actively increased the share of domestic office and retailers to their portfolio, serving as a buffer against their POGO exposure. Developers have long acknowledged the volatile nature of their foreign business. There will be a substantial drag to the bottom line, for sure, if a blanket purge on POGO will happen, but most management were guarding against this specific scenario for quite some time.” — Charmaine A. Tadalan, Arra B. Francia