Franchise grant and business coverage
- Section 1 grants to Hapi Jockey Club, Inc. (the Grantee), including its successors or assignees, a franchise to construct, operate, and maintain horse racing race tracks within the provinces of Batangas, Laguna, and Cavite.
- Section 1 allows the Grantee to establish branches for booking purposes anywhere in the country.
- Section 1 authorizes the Grantee to hold or conduct horse races with betting on the results of such races.
- Section 1 allows betting directly or by means of mechanical, electrical, or computerized totalizator.
- The Grantee is authorized to do all acts and things necessary to give effect to the franchise grant (Section 1).
Regulatory supervision and betting oversight
- The horse races conducted by the Grantee are placed under the supervision and regulation of the Philippine Racing Commission (PHILRACOM), which enforces laws and rules on horse racing (Section 2).
- Section 2 empowers PHILRACOM to frame and schedule races, require construction and enforce safety for racetracks, allocate prizes for winning horses, and ensure security of racing, as provided in Presidential Decree No. 420, as amended (Section 2).
- Section 2 provides that the Games and Amusements Board (GAB) continues to supervise and regulate betting in horse races, as provided in Sections 6, 11, 15, 18, and 24 of Republic Act No. 309, as amended (Section 2).
Betting authority and exclusivity rules
- The Grantee, or its duly authorized agency, may offer, take or arrange bets for races conducted in or outside the Philippines (Section 3).
- The Grantee may offer and process bets in person or through any electronic or other means of processing transactions (Section 3).
- Betting may be arranged anywhere in the Philippines, whether within or outside the place, enclosure, or track where races are held (Section 3).
- The Grantee may conduct on-track or off-track betting stations and accept bets a day in advance of and/or during schedule races held or conducted within or outside the Philippines (Section 3).
- No other person or entity, other than the Grantee or its duly authorized agents or licensees, may offer, take, or arrange bets on any horse participating in a race conducted by the Grantee (Section 3).
- No other person or entity, other than the Grantee or its duly authorized agents or licensees, may maintain or use a totalizator or other device, method, or system to bet on any horse within its premises or outside the place, enclosure, or track in the course of Grantee-operated or Grantee-conducted horse races (Section 3).
Penalties for unlawful betting and liability
- Section 4 penalizes violations of the immediately preceding betting exclusivity rules by fine of not less than PHP 20,000.00 but not more than PHP 100,000.00, or imprisonment of not more than six (6) months, or both, at the discretion of the court (Section 4).
- If the offender is a partnership, corporation, or association, criminal liability devolves upon its president, managing partner, or manager responsible for the violation (Section 4).
Authorized devices, compliance, and PHILRACOM/GAB oversight
- The Grantee is authorized to provide and operate devices and facilities necessary for orderly, clean, and honest conduct of betting and racing (Section 5).
- The franchise expressly authorizes the Grantee to operate, among others, photo patrol and other electronic devices or cameras, automatic starter, and an electrical, electronic and computerized totalizator (Section 5(a), (b), (c)).
- The franchise expressly authorizes additional equipment including photo finish devices, machines connected to a computer for display boards for the sale of tickets (including off-track ticket sales), and facilities for tattoo branding of horse for identification (Section 5(d), (e), (f)).
- The franchise expressly authorizes facilities, laboratories and instruments for testing for drugs, and weighing machines and devices for measurement of horses and other modern measurement devices (Section 5(g), (h), (i)).
- The franchise authorizes facilities for safety, security, comfort and convenience to the public, and modern telecommunications and broadcast equipment for receiving/transmitting messages, signals, and pictures relating to betting and the conduct of races, announcements of winning numbers and dividends, and other race information, whether at tracks or off-track betting stations (Section 5(j), (k)).
- The franchise authorizes continuous and back-up power supply, and any other facilities and systems ensuring clean, honest racing and betting, or derivative games (Section 5(l), (m)).
- If the Grantee fails to provide and install any of the enumerated equipment and facilities within a three-year period, PHILRACOM must forthwith suspend and prohibit the holding of races until the equipment or facilities are provided and installed (Section 5).
- GAB must assign auditors and inspectors to supervise and regulate placing of bets, proper computation of dividends, and distribution of wager funds (Section 5).
Betting tickets and total wager distribution
- The Grantee must publish and display prominently in appropriate places the terms and conditions regarding the sale of betting tickets (Section 6).
Distribution of total wager funds or gross receipts
- Section 7 directs that total wager funds or gross receipts from ticket sales are appropriated as follows:
- 82% is distributed as dividends among holders of winning tickets, whether from pari-mutuel, daily double, forecast, llave, quinella, trifecta, exotics, or any other manner of betting (Section 7(a)).
- 8.5% is set aside for payment of stakes or prizes of win, place and show horses and authorized bonuses for jockeys (Section 7(b)).
- 0.5% is set aside for use of PHILRACOM (Section 7(d)).
- In the case of gross receipts derived from pari-nutuel races, the 0.5% government share for PHILRACOM is set aside for use of the GAB, to be shared equally with the Jockeys and Horse Trainers’ Injury, Disability and Death Compensation Fund created under Republic Act No. 309, as amended (Section 7(d)).
- 0.5% is set aside for operation of drug testing facilities for personnel, jockeys, trainers and horses, and for rehabilitation of the Grantee’s racing facilities (Section 7(e)).
Breakage allocation
- Breakage receipts—receipts corresponding to fractions of less than Ten centavos (P0.10) eliminated from dividends—are allocated as follows (Section 8).
- 50% is used by PHILRACOM exclusively for payment of additional prizes for races it sponsors and for necessary capital outlays and expenditures related to horse breeding activities of the National Stud Farm (Section 8(a)).
- 25% is allocated to the city or municipal hospitals where the race track is located (Section 8(b)).
- 25% augments funding for establishment, maintenance, and operation of drug rehabilitation centers in the country, as provided in Republic Act No. 9165, otherwise known as the Comprehensive Dangerous Drugs Act of 2002, as amended (Section 8(c)).
Racing schedule and operating frequency
- The Grantee is authorized to hold horse races on at least two (2) days during the week as determined by PHILRACOM, and on all Saturdays, Sundays and official holidays of the year, except official holidays where law expressly provides that no horse races are to be held (Section 9).
- The Grantee may conduct races on the eve of any public holiday to start not earlier than 5:30 in the afternoon, but not exceed five (5) days a year (Section 9).
- The Grantee must allocate racing days pursuant to the provisions of Republic Act No. 309, as amended (Section 9).
Tax regime and reporting to BIR
- Section 10 imposes specific tax rules despite contrary provisions of existing laws.
Documentary stamp tax on tickets
- For each horse race ticket, a documentary stamp tax of Ten centavos (P0.10) is collected (Section 10(a)(1)).
- If the cost of the ticket exceeds One peso (P1.00), an additional Ten centavos (P0.10) is collected on every One pesos (P1.00) or fractional part thereof (Section 10(a)(1)).
- For double forecast/quinella and trifecta bets, the tax is Five centavos (P0.05) on every One peso (P1.00) worth of ticket (Section 10(a)(1)).
Franchise tax and property taxes
- The Grantee, successors, or assignees must pay the same taxes on real estate, buildings, and personal property, exclusive of the franchise, as other persons or corporations required by law (Section 10(a)(2)).
- In addition, the Grantee must pay a franchise tax equal to twenty-five percent (25%) of its gross earnings from horse races authorized under the franchise, which equals 8 1/2% of total wager funds or gross receipts from ticket sales during racing days mentioned in Section 9 (Section 10(a)(2)).
- The franchise tax is allotted as follows: (i) 5% for the national government; (ii) 5% for the province or city/municipality where the racetrack is located; (iii) 7% for the municipal hospital where the racetrack is located; (iv) 6% to the Philippine Anti-Tuberculosis Society; and (v) 2% to the White Cross (Section 10(a)(2)).
- The taxes must be paid monthly and are in lieu of any and all taxes of any kind levied except income tax, on properties (real or personal), with the Grantee expressly exempted from those non-income taxes (Section 10(a)(2)).
- The Grantee must file returns with and pay taxes due to the Commissioner of Internal Revenue or duly authorized representatives in accordance with the National Internal Revenue Code, as amended, and the returns are subject to audit by the Bureau of Internal Revenue (Section 10(a)(2)).
Tax on winnings
- Every person who wins in horse racing must pay a tax equivalent to ten percent (10%) of winnings or dividends, based on the actual amount paid to the winner for a winning ticket after deducting the cost of the ticket (Section 10(b)).
- For winnings from double forecast/quinella and trifecta bets, the tax is four percent (4%) (Section 10(b)).
- For winnings from winning race horses, the tax is ten percent (10%) of the prize (Section 10(b)).
- Winnings of PHP 10,000.00 or less are exempt (Section 10(b)).
- Taxes are deducted from dividends or prize amounts corresponding to each winning ticket or each winning race horse owner and are withheld by the operator, manager, or person in charge of the horse races before paying the dividends or prizes (Section 10(b)).
- Within twenty (20) days from the date tax was deducted and withheld, the operator/manager/person in charge must file a true and correct return with the Commissioner of Internal Revenue in the manner or form prescribed by the Secretary of Finance and must pay the total withheld tax within the same period (Section 10(b)).
Franchise duration and conditions for cancellation
- The franchise lasts for twenty-five (25) years from the date of effectivity of the Act, unless sooner cancelled (Section 11).
- The franchise is ipso facto revoked if the Grantee fails to comply with any of these conditions (Section 11):
- Commencement of operations within three (3) years from approval of its operating permit by PHILRACOM (Section 11(a)).
- Commencement of operations within five (5) years from the effectivity of the Act (Section 11(b)).
- Continuous operation for two (2) years (Section 11(c)).
Government warranty and liability protection
- The Grantee must hold national, provincial, city, and municipal governments free from claims, liabilities, demands, or actions arising from accidents causing injury to persons or damage to properties during the construction or operation of the racetrack (Section 12).
Restrictions on assignment, transfer, and ownership changes
- The Grantee may not sell, lease, transfer, grant the usufruct of, or assign the franchise or rights and privileges acquired thereunder, nor may it merge with another corporation or entity, nor transfer controlling interest of the Grantee to another person/entity without prior approval of Congress (Section 13).
- The Grantee must inform Congress of any sale, lease, transfer, grant of usufruct, assignment, merger, or transfer of controlling interest within sixty (60) days after completion (Section 13).
- Failure to report such change of ownership results in ipso facto revocation of the franchise (Section 13).
- Any person or entity that acquires the franchise through sale, transfer, or assignment becomes subject to the same conditions, terms, restrictions, and limitations of the Act (Section 13).
Ownership dispersal requirement
- The Grantee must offer at least thirty percent (30%) of its outstanding capital stock, or a higher percentage if later required by law, in a securities exchange in the Philippines within five (5) years from effectivity (Section 14).
- If a public offer of shares is not applicable, other methods to encourage public participation by citizens and corporations must be implemented (Section 14).
- Noncompliance with this ownership dispersal requirement causes ipso facto revocation of the franchise (Section 14).
Annual reporting and congressional compliance certificate
- The Grantee must submit an annual report to Congress on its compliance with franchise terms and its operations on or before April 30 of every year during the term of the franchise (Section 15).
- The annual report must include an update on rollout, development, operation, or expansion; audited financial statements; latest General Information Sheet officially submitted to the Securities and Exchange Commission if applicable; and certifications of PHILRACOM and GAB on the status of permits and operations (Section 15).
- The reportorial compliance certificate issued by Congress is required before any application for permit or certificate is accepted by PHILRACOM and GAB (Section 15).
Fine for failure to submit annual report
- Failure to submit the requisite annual report triggers a fine of PHP 500.00 per working day of noncompliance (Section 16).
- PHILRACOM collects the fine from the delinquent franchise Grantee separately from any reportorial penalties imposed by PHILRACOM, if any (Section 16).
- Collected fines are remitted to the Bureau of Treasury (Section 16).
Equality and nonexclusivity
- Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or later granted for horse racing upon prior review and approval of Congress, becomes part of this franchise and must be accorded to the Grantee immediately and unconditionally (Section 17).
- The equality clause does not affect franchise provisions on territorial coverage, term, or type of service authorized (Section 17).
- The franchise is subject to amendment, alteration, or repeal by Congress when the public interest so requires, and it is not interpreted as an exclusive part of the privileges provided (Section 18).
Separability, repeals, and amendments
- If any section or provision is held invalid, remaining provisions not affected by the invalidity remain valid (Section 19).
- All inconsistent laws, decrees, orders, resolutions, instructions, rules and regulations, and other issuances or parts thereof are repealed, amended, or modified accordingly (Section 20).