RENEWED CALLS for the abolition of taxes imposed on foreign airlines will be opposed by the Finance department, which claims the current system is legitimate and even preferential.
Claims of discriminatory treatment and double taxation raised by the Joint Foreign Chambers (JFC) and overseas carriers were rejected in a draft department position paper, dated Oct. 18, that is expected to be signed by Finance Secretary Cesar V. Purisima and submitted to Malacañang.
“The [current system] does not amount to an arbitrary, unreasonable and intentional discrimination that violates World Trade Organization principles and the equal protection clause of our Constitution…,” the draft states.
While the government imposes a 2.5% gross Philippine billing tax (GPBT) and a 3% common carriers tax (CCT) on foreign airlines, their domestic counterparts are subject to a 12% value-added tax (VAT) and a 30% corporate income tax, the Finance department said.
International and domestic carriers are “similarly treated” since they are both subject to taxes. Foreign airlines even enjoy “considerably preferential” rates, it claimed.
“Hence, it cannot be argued that the imposition of GPBT, in addition to CCT, is discriminatory against international carriers,” the paper states.
Moreover, local carriers also pay taxes to other countries for their operations abroad, the Finance department said.
Philippine Airlines, for instance, pays income taxes on revenues generated in the country it flies to, such as revenues coming from the carriage of passengers as well as cargo and excess baggage fees. Other countries such as China even levy additional taxes such as river and road maintenance management taxes.
The JFC wrote to President Benigno S. C. Aquino III last month, appealing for reforms in the tax treatment of foreign air and shipping carriers to help boost tourism and trade. It also called on the President to declare House Bill 4444 of Iloilo City Rep. Jerry P. Treñas as urgent as it seeks to exempt overseas carriers from the GPBT and the CCT.
The Finance department paper comes as Air France-KLM, the sole European carrier operating in the Philippines, announced last week that it would be phasing out direct flights between Manila and Europe due to the heavy tax burden.
“While the DoF (Department of Finance) does support the objective of promoting a more competitive and better aviation and shipping market in the Philippines, we have reservations to any measure that would involve foregoing the collection of GPBT and CCT as it would inflict huge fiscal costs to the government,” the position paper states.
The government will lose an average of P2.5 billion in revenues from CCT and GPBT per year, it adds. Furthermore, any move to exempt overseas carriers would unduly penalize domestic airlines who are still liable to pay both corporate income taxes and VAT.
The paper also addressed the issue of double taxation, differentiating the purposes of the CCT and the GPBT. While both are imposed on the same tax base — “all revenues, passenger, cargo and excess baggage originating from the Philippines” — the CCT is a business tax, while the GPBT is an income tax, it explained.
The department pointed to government efforts aimed at helping foreign airlines with their tax liabilities, with the Bureau of Internal Revenue recently revising taxes that will now be based on actual ticket prices, and cargo and baggage fees instead of the monthly average net fare.
“The revision now effectively allows foreign airlines to pass on the tax to their passengers,” the paper states.
European Chamber of Commerce of the Philippines president Hubert d’Aboville said he was “disappointed” at the Finance department’s stance, which he called a “huge mistake.”
“We have already made so many appeals to [former Finance Secretary Margarito B. Teves] and even before that,” Mr. d’Aboville said in a telephone interview yesterday.
“This sends the wrong signals to investors. At a time when we want to reduce distance between the Philippines and other countries, we are going even further,” he added.
The current tax system will push foreign airlines to reduce their operations in the Philippines or leave altogether, he claimed. As a result, the government will lose tax revenues and tourists.
“In the past decade, we had 10 European airline companies operating in the Philippines, and soon, not even a single one. In the long term, the Philippines will be on the losing end,” Mr. d’Aboville said.
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By: Diane Claire J. Jiao
Source: Business World, October 23, 2011
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