Philippines Aviation NEWS: House committee OKs scrapping of airline carriers tax

House committee OKs scrapping of airline carriers' tax

MANILA, Philippines - The House ways and means committee has approved a bill recognizing the need to exempt international airlines from Philippine taxes under treaties and international agreements to which the Philippines is a signatory.

House Bill 3928 was reported out for plenary deliberations after the Technical Working Group (TWG) that included representatives from different flag carriers particularly Cebu Pacific and Philippine Airlines finished the review on the reciprocity and the disadvantages of the proposed law.

Legislators said that the government is expected to earn $38 million to $78 million from tourism and an additional $1 billion in export earnings by exempting international air carriers from paying the gross Philippine billings tax (GPBT) and the 3% common carrier’s tax (CCT).

“I can see through business competition that this can make the country a major destination, especially for tourism,” said Lakas-Kampi-CMD Rep. Danilo Suarez of Quezon, a senior member of the panel.

“During the last nine years of the Arroyo administration, the country spent P115 billion to upgrade its airports. It will be sheer waste of time and money if we have airports without passengers and without airlines landing or taking off,” he added.

Liberal Party Rep. Hermilando Mandanas of Batangas, committee chairman and author of HB 3928, said the measure aims to empower the executive branch to execute the tax exemptions under tax treaties and agreements signed by the country related to international carriers.

“There are no economics involved here. We just want to be a responsible member of the global community by complying with the international tax treaties and agreements we signed. And we want to convey the issue that the Department of Finance and the Bureau of Internal Revenue (DOF) would comply with these treaties and agreements,” said Mandanas.

Mandanas said there could be a separate bill on amending taxes for the sake of improving tourism in the country.

“But this particular bill we approved is just to underscore that our country is going to comply with all the tax treaties and international agreements it signed relating to international carriers,” Mandanas said.

During the hearing, Theresa Genevieve Co, lawyer of the Bureau of Internal Revenue (BIR) tax affairs division, said that the existing tax treaties cover only taxes on income and capital and do not include the CCT.

Co said Section 135 of the National Internal Revenue Code of 1997 provides for the excise tax exemption of petroleum products sold to international carriers of Philippine or foreign registry on their use or consumption outside the Philippines.

The bill provides for an amendment of the National Internal Revenue Code of 1997, as amended, in particular Section 28 (A) (3) on Tax on Resident Foreign Corporations and Section 118 on Percentage Tax on International Carriers to recognize the tax exemptions of international air and shipping carriers.

Mandanas said the Philippines is the only country that charges GPBT and CCT taxes on international civil aviation and sea travel. Both taxes are levied on all revenues, passengers, cargoes and excess baggage leaving the Philippines regardless of the point of sale or payment of the ticket, passage or freight documents, whichever is the case.

He said that from the viewpoint of international carriers, such impositions violate the non-discrimination principle of the World Trade Organization.

“This WTO principle states that a member state such as the Philippines should not discriminate between its own and foreign products and services.

NEHA JAIN

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