PAL warns against removal of tax incentives

The proposed removal of the tax incentives given to local airline companies will result in higher fares and would weaken their global competitiveness, flag-carrier Philippine Airlines (PAL) warned.

On the sidelines of the Wallace Business Forum anniversary celebration late Tuesday, Jaime J. Bautista, PAL president and chief operating officer said that collecting “all applicable taxes” from local airliners would definitely take a toll on the industry’s bottom-line.

Bautista said that for PAL alone, the proposed removal of its tax incentives would cost the company $200 million, which the airliner plans to pass on to passengers.

“Let’s say if the tax incentives are removed from us, considering our operations in 2017, that would mean an additional cost for us of $200 million per year,” Bautista told reporters.

Aside from higher operating cost, Bautista said the Department of Finance’s (DOF) proposal would further weaken the local carriers’ competitiveness against their foreign competitors.

Bautista said that the DOF proposal would only cover PAL, Cebu Pacific Air and other local companies, but not foreign carriers.

Sought for comment, Finance Secretary Carlos G. Dominguez III said that they would listen to the concerns raised by PAL.

Dominguez, however, said that there is a need to review the represent tax incentive regime being implemented by the national government.

Tax incentives being enjoyed by the country’s two major airline companies will be removed once the DOF’s proposed tax reform package two is passed into law.

Based on the Comprehensive Tax Reform Program (CTRP) package two submitted to the House of Representatives, the government will start collecting “all applicable taxes” under the national internal revenue code on the operations of PAL and Cebu Pacific Air once the proposed measure is enacted into law.

Despite the removal of their tax incentives, the DOF wants to keep PAL’s franchise fee at two percent of gross revenues derived from all income sources whether transport or non-transport income.

Cebu Pacific’s franchise fee is proposed by the DOF to be kept at five percent.

Revenues from incoming international passengers, mail, freight, however, will remain not subject to Philippine taxes.

Under the proposed CTRP-2, PAL’s congressional franchise is overhauled, removing several provisions pertaining to the airliner’s exemptions from other taxes, duties, royalties, registration, license and other fees collected by local governments.

The proposal also imposes taxes, duties, charges among others on PAL’s importation of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, oil, among others.

PAL is also be required to pay taxes on lease rentals, interest, fees and other charges payable to both local and foreigh lessors.

The flag carrier’s leasing operations are subject to taxes under the DOF’s package two proposal.

On Cebu Pacific’s congressional franchise, the catch on clause ensuring that the Gokongwei-led airline company enjoys a level playing field in the industry in terms of tax treatment is removed.

The taxes under the franchise granted to Aboitiz Air Transport Corp. are likewise overhauled by the DOF under its second tax reform proposal.