Legal Requirements for Running a Raffle System in the Philippines

Introduction

In the Philippines, raffles—often referred to as raffle draws, sweepstakes, or lotteries—are popular mechanisms for promotions, fundraising, and entertainment. However, they are subject to strict legal regulations to prevent abuse, ensure fairness, and distinguish them from illegal gambling. The Philippine legal framework views raffles as games of chance, which can fall under gambling laws if not properly authorized. Unauthorized raffles may be classified as illegal gambling under the Revised Penal Code (RPC), potentially leading to criminal penalties.

This article provides a comprehensive overview of the legal requirements for operating a raffle system in the Philippine context. It covers regulatory bodies, application processes, compliance obligations, distinctions between types of raffles, and potential liabilities. Note that laws and regulations may evolve, so consulting with legal experts or relevant government agencies is advisable for the most current guidance. Key statutes include Republic Act No. 386 (Civil Code), Presidential Decree No. 1602 (amending gambling laws), Republic Act No. 7394 (Consumer Act of the Philippines), and rules from agencies like the Department of Trade and Industry (DTI) and the Philippine Charity Sweepstakes Office (PCSO).

Regulatory Framework and Bodies

Raffles in the Philippines are not uniformly regulated; oversight depends on the raffle's purpose:

Promotional Raffles (Sales Promotions): These are raffles tied to product sales or marketing campaigns, regulated by the Department of Trade and Industry (DTI) under the Consumer Act (RA 7394) and DTI Department Administrative Order (DAO) No. 10-02, Series of 2002 (Rules on Consumer Sales Promotions). The DTI ensures that such raffles are fair, transparent, and not deceptive.
Charitable or Fundraising Raffles: Raffles for charitable purposes fall under the Philippine Charity Sweepstakes Office (PCSO), established by Republic Act No. 1169 (as amended). PCSO has exclusive authority over national lotteries and sweepstakes for health, medical, and charitable causes. Private entities may partner with PCSO for approval.
Gaming or Casino-Related Raffles: If a raffle involves elements of betting or is part of casino operations, it is regulated by the Philippine Amusement and Gaming Corporation (PAGCOR) under Presidential Decree No. 1869 (PAGCOR Charter). However, standard raffles are rarely classified here unless they involve wagering.
Local Government Oversight: For small-scale, local raffles (e.g., community events), permits may be required from Local Government Units (LGUs) under the Local Government Code (RA 7160). LGUs can impose additional requirements or fees, but these must align with national laws.
General Gambling Prohibitions: All raffles must avoid classification as illegal gambling under Articles 195-199 of the RPC, as amended by PD 1602. Illegal gambling includes unauthorized lotteries, with penalties ranging from fines to imprisonment.

The distinction hinges on whether the raffle requires consideration (e.g., payment for entry), involves chance, and offers a prize. If all three elements are present without authorization, it may be illegal (per US v. Baguio, G.R. No. L-9017, 1914, though adapted to Philippine jurisprudence).

Requirements for Promotional Raffles (DTI-Regulated)

Promotional raffles are the most common type for businesses. To legally operate one, a permit from the DTI is mandatory if the total prize value exceeds PHP 500 (as per DTI thresholds, subject to adjustment). Failure to obtain a permit can result in administrative fines, cease-and-desist orders, or criminal charges.

Application Process

Eligibility: Open to businesses registered with the Securities and Exchange Commission (SEC), DTI (for sole proprietorships), or Cooperative Development Authority (CDA). Foreign entities must comply with investment laws.
Submission: Apply to the DTI Fair Trade Enforcement Bureau (FTEB) or regional offices at least 30 days before the raffle start date. Use the prescribed application form (available on the DTI website).
Required Documents:
- Notarized application form.
- Company registration documents (e.g., SEC Certificate, Articles of Incorporation).
- Detailed mechanics of the raffle (e.g., entry method, draw date, winner selection process).
- List of prizes with appraised values (must be verifiable; luxury items require appraisals).
- Proof of prize procurement (e.g., purchase receipts or supplier agreements).
- Bond or surety equivalent to the total prize value (to guarantee prize delivery; can be cash, manager's check, or insurance bond).
- Advertising materials (e.g., posters, ads) for review to ensure no misleading claims.
- Affidavit of undertaking to comply with rules.
Fees: Application fee (PHP 500-5,000, depending on prize value) plus a supervision fee (1-2% of total prizes). Bonds are refundable post-raffle if compliant.

Compliance Obligations

Transparency: All mechanics must be publicly disclosed, including odds of winning, entry deadlines, and disqualification rules. No changes post-approval without DTI consent.
Fairness: Draws must be random and witnessed by a DTI representative. Use of electronic systems (e.g., random number generators) requires certification for fairness.
Participant Protection: Entries must be free or tied to purchases without coercion. Minors under 18 are typically prohibited from participating.
Duration and Scope: Limited to a specific period (e.g., 1-6 months); nationwide raffles require national permits, while regional ones can be localized.
Reporting: Submit a post-raffle report within 15 days, including winner lists, prize distribution proofs, and unused entry stubs. DTI may audit.
Taxes: Prizes are subject to 20% final withholding tax under the Tax Code (RA 8424, as amended by TRAIN Law). Winners bear this unless the promoter absorbs it.

Common Pitfalls

Avoiding "pay-to-play" structures that mimic gambling.
Ensuring no insider advantages (e.g., employees ineligible unless disclosed).
Compliance with data privacy under RA 10173 (Data Privacy Act) for collecting participant information.

Requirements for Charitable Raffles (PCSO-Regulated)

Charitable raffles aim to raise funds for public welfare and require PCSO approval to legitimize them as non-gambling activities.

Application Process

Eligibility: Non-profit organizations, foundations, or government entities registered with the SEC or appropriate bodies.
Submission: Apply to PCSO at least 60 days in advance. Forms are available from PCSO offices.
Required Documents:
- Organizational documents and proof of charitable purpose.
- Raffle mechanics, prize details, and fundraising goals.
- Budget breakdown (e.g., proceeds allocation: at least 55% to charity per PCSO rules).
- Ticket design and printing proofs (tickets must include disclaimers).
- Guarantee or bond for prizes.
Fees: Variable, including a percentage of ticket sales (e.g., 10-15% to PCSO for oversight).

Compliance Obligations

Public Benefit: At least a majority of proceeds must go to charitable causes; PCSO monitors this.
Ticket Sales: Tickets must be sold at face value; no scalping. Draws must be public or supervised.
Transparency: Publish results in newspapers or official gazettes.
Prohibitions: Cannot be used for private gain; violations lead to revocation.
Taxes: Similar to promotional raffles, with exemptions possible for purely charitable prizes.

For small-scale charitable events (e.g., school fundraisers with prizes under PHP 10,000), LGU permits may suffice without PCSO involvement, but this is discretionary.

Prohibitions, Penalties, and Liabilities

Prohibited Practices:
- Operating without permits.
- Rigging draws or false advertising (violates RA 7394).
- Targeting minors or vulnerable groups.
- Cross-border raffles without international compliance (e.g., anti-money laundering under RA 9160).
- Online raffles: Must comply with cyber laws (RA 10175); virtual draws require DTI/PCSO approval for e-raffles.
Penalties:
- Administrative: Fines from PHP 5,000 to PHP 1,000,000 (DTI/PCSO); permit revocation.
- Criminal: Under RPC Art. 196 (illegal gambling): Arresto mayor (1-6 months imprisonment) and fines up to PHP 6,000 for first offenses. Repeat violations escalate under PD 1602.
- Civil: Lawsuits for fraud or breach of contract; winners can sue for undelivered prizes under the Civil Code.
Liabilities: Organizers are liable for prize delivery; failure can lead to estafa charges (RPC Art. 315). Corporate officers may face personal liability.

Special Considerations

Online and Digital Raffles: With the rise of e-commerce, DTI has guidelines for online promotions (e.g., DAO 20-03). Ensure platforms are secure and compliant with RA 8792 (E-Commerce Act).
Raffles in Special Zones: In economic zones (e.g., PEZA), additional approvals from zone authorities may be needed.
Force Majeure: Raffles can be postponed for unforeseen events, but with agency notification.
International Participants: Foreign winners must comply with immigration and tax laws.

Conclusion

Running a raffle in the Philippines requires meticulous adherence to regulatory requirements to ensure legality and protect participants. Whether for promotion or charity, obtaining the appropriate permit from DTI, PCSO, or LGUs is essential. By prioritizing transparency, fairness, and compliance, organizers can avoid severe penalties while achieving their objectives. For tailored advice, engage a Philippine-barred attorney or directly consult the relevant agencies, as interpretations may vary based on specific circumstances. This framework safeguards consumers and upholds public order in a country where games of chance are culturally significant yet tightly controlled.