Legal Requirements for Conducting Raffles in the Philippines

Introduction

In the Philippines, raffles are a popular mechanism for fundraising, promotions, and community events. However, they are subject to strict legal regulations to prevent abuse, ensure fairness, and align with public policy against unregulated gambling. Raffles involve elements of chance, prize, and consideration (such as ticket purchase), which classify them under lottery or gambling laws. The Philippine legal framework distinguishes between charitable raffles, commercial promotional raffles, and prohibited forms of illegal gambling. Key governing laws include Republic Act (RA) No. 1169 (creating the Philippine Charity Sweepstakes Office or PCSO), Presidential Decree (PD) No. 1602 (on illegal gambling), and Department of Trade and Industry (DTI) Administrative Orders for sales promotions. This article provides a comprehensive overview of the legal requirements, procedures, prohibitions, and penalties for conducting raffles in the Philippine context.

Definition and Classification of Raffles

Under Philippine law, a raffle is defined as a game of chance where participants purchase tickets or entries for a opportunity to win prizes through a random draw. This aligns with the broader definition of a lottery under RA No. 1169, which includes any scheme for distributing prizes by lot or chance. Raffles are classified into two main categories:

Charitable or Fundraising Raffles: These are conducted for non-profit purposes, such as supporting charitable institutions, disaster relief, or community projects. They fall under the jurisdiction of the PCSO, which holds a monopoly on lotteries but allows regulated exceptions for charitable causes.
Commercial or Promotional Raffles: These are used by businesses for sales promotions, marketing, or customer engagement. They are regulated by the DTI under the Consumer Act of the Philippines (RA No. 7394) and related administrative orders, ensuring they do not constitute illegal gambling.

Any raffle that does not fit these categories or lacks proper authorization may be deemed illegal gambling under PD No. 1602, as amended by RA No. 9287, which increases penalties for unlawful betting activities.

Regulatory Bodies Involved

Several government agencies oversee raffles to ensure compliance:

Philippine Charity Sweepstakes Office (PCSO): Primary regulator for charitable raffles and lotteries. The PCSO ensures that proceeds benefit public welfare and that operations are transparent.
Department of Trade and Industry (DTI): Handles commercial raffles through its Fair Trade Enforcement Bureau (FTEB). The DTI issues permits for sales promotions involving chance-based draws.
Philippine Amusement and Gaming Corporation (PAGCOR): While primarily focused on casinos and gaming, PAGCOR may regulate raffles in licensed gaming establishments, but this is rare for standard raffles.
Local Government Units (LGUs): May require additional permits or clearances for events held within their jurisdiction, especially if involving public spaces or large gatherings.
Bureau of Internal Revenue (BIR): Oversees tax implications, as raffle prizes and proceeds may be subject to withholding taxes under the National Internal Revenue Code (RA No. 8424, as amended).

Coordination with these bodies is essential to avoid overlapping regulations or conflicts.

Requirements for Charitable Raffles

Charitable raffles must obtain explicit approval from the PCSO to operate legally. The process is governed by PCSO rules and guidelines, which emphasize public benefit and accountability.

Permit Application Process

Eligibility: Only non-profit organizations, charitable institutions, or government entities may apply. For-profit entities are generally ineligible unless partnering with a qualified beneficiary.
Application Submission: Submit a formal letter of intent to the PCSO Board of Directors, including:
- Organizational details (e.g., SEC registration for NGOs, or ordinance for LGUs).
- Purpose of the raffle and intended beneficiaries.
- Projected budget, including prize values, ticket prices, and expected proceeds.
- Mechanics of the draw (e.g., number of tickets, draw date, venue).
Required Documents:
- Certificate of registration from the Securities and Exchange Commission (SEC) or Department of Social Welfare and Development (DSWD) for NGOs.
- Audited financial statements.
- List of prizes with valuations (prizes must not exceed 50% of gross proceeds).
- Bond or surety equivalent to the value of prizes.
Approval and Fees: The PCSO reviews applications within 30-60 days. Approved raffles require a permit fee (typically 1-2% of projected gross sales) and a performance bond. The PCSO may impose conditions, such as auditing requirements.
Conduct and Reporting: The draw must be public, witnessed by PCSO representatives, and use tamper-proof methods. Post-event, submit a financial report within 30 days, detailing proceeds and disbursements. At least 30% of net proceeds must go to charitable causes.

Tax Obligations

Withholding Tax on Prizes: Prizes exceeding PHP 10,000 are subject to 20% final withholding tax (RA No. 10963 or TRAIN Law).
Income Tax on Proceeds: Charitable organizations may be exempt if registered as non-stock, non-profit under Section 30 of the Tax Code, but must file returns.

Failure to comply can result in permit revocation and penalties.

Requirements for Commercial Raffles

Commercial raffles, often part of sales promotions, are regulated by the DTI to protect consumers and prevent deceptive practices.

Permit Application Process

Eligibility: Open to businesses registered with the DTI or SEC. The promotion must tie to product sales (e.g., "buy one, get a raffle entry").
Application to DTI-FTEB: File at least 15 days before the promotion start date via the DTI's online portal or regional offices. Include:
- Business registration documents.
- Promotion mechanics (duration, entry method, draw process).
- List of prizes (total value not exceeding 2% of projected sales for the promotion period).
- Budget and projected sales.
Required Documents:
- Proof of prize sourcing (e.g., invoices).
- Bond equivalent to prize value (via insurance or bank guarantee).
- Affidavit of undertaking to comply with rules.
Approval and Fees: Permits are issued within 5-10 working days. Fees range from PHP 500 to PHP 5,000 based on prize value. The DTI may require modifications for fairness.
Conduct and Reporting: Draws must be public or supervised by DTI representatives. Use random selection methods. Post-promotion, submit a report within 60 days, including winner lists and unclaimed prizes (which revert to the promoter or donated).

Additional Rules

No Purchase Necessary Option: To avoid gambling classification, provide a free entry method (e.g., mail-in entries).
Prize Limits: Prizes cannot be cash equivalents exceeding certain thresholds without additional scrutiny.
Advertising: All promotions must disclose full mechanics, odds, and terms under the Consumer Act.

Tax Obligations

Similar to charitable raffles, prizes over PHP 10,000 incur 20% withholding tax. Businesses deduct promotion costs as expenses but report income accordingly.

Prohibitions and Penalties

Philippine law strictly prohibits unauthorized raffles to curb illegal gambling.

Prohibited Activities

Conducting raffles without PCSO or DTI permits.
Raffles resembling illegal numbers games (e.g., jueteng) under PD No. 1602.
Misrepresentation of proceeds or prizes.
Targeting minors (participants must be 18+).
Online raffles without specific authorization, as they may violate cybercrime laws (RA No. 10175).

Penalties

Under PD No. 1602, as amended by RA No. 9287: Fines from PHP 200,000 to PHP 600,000 and imprisonment from 6 years to 12 years for organizers. Participants face lighter penalties.
Administrative Sanctions: Permit revocation, blacklisting, and business closure by DTI or PCSO.
Civil Liabilities: Winners may sue for unclaimed prizes; organizations face damages for fraud.
Tax Penalties: Evasion leads to assessments plus 50% surcharge and 25% interest under the Tax Code.

Enforcement involves the Philippine National Police (PNP) and National Bureau of Investigation (NBI), with reports of crackdowns on illegal online raffles during the COVID-19 era.

Special Considerations

Online and Digital Raffles: Must comply with existing rules; virtual draws require verifiable randomness and data privacy under RA No. 10173 (Data Privacy Act).
Religious or Community Events: May qualify as charitable but still need PCSO approval if prizes are involved.
International Aspects: Cross-border raffles involving Filipinos must adhere to local laws; prizes imported may incur customs duties.
COVID-19 Adaptations: Post-pandemic guidelines allow virtual draws with live streaming, but physical supervision is preferred.

Conclusion

Conducting raffles in the Philippines requires meticulous adherence to legal requirements to ensure legitimacy and avoid severe penalties. Whether for charity or commerce, obtaining permits from the PCSO or DTI, maintaining transparency, and fulfilling tax obligations are paramount. Organizers should consult legal experts or the relevant agencies for updated guidelines, as administrative rules may evolve. By complying, raffles can serve as effective tools for community support and business growth while upholding public trust and order.