AN AMERICAN airline has apparently taken issue with the Philippines’ common carrier tax, although preferring instead to have the United States embassy speak on its behalf, diplomatic cables released last week by WikiLeaks showed.
Northwest Airlines Corp., which has been bought out by Delta Air Lines, Inc. in 2010, had been seeking help from authorities to abolish the taxes levied on foreign carriers, the US embassy appeared to have reported to Washington in the leaked communique dated Dec. 11, 2008.
The tax is imposed on revenues from outbound passengers and cargo whether or not the tickets were sold in the Philippines.
“Northwest Airlines has raised with us concerns about discriminatory taxes levied on foreign air carriers serving the Philippine market,” the cable purportedly sent out by the embassy read.
“The airline is asking that the Embassy lobby for the abolition of this tax, or for some solution which would mitigate its effects,” it read further.
Officials from Delta Air Lines and the US embassy were not immediately available for comment.
“As Northwest has not wanted to be seen as taking the lead on this issue, it is working through the International Air Transport Association (IATA)… to press for changes in the taxation regime,” the cable read, noting that a meeting had already transpired among officials of the embassy, Northwest Airlines and IATA a few weeks earlier.
Northwest’s tack contrasts against that of its more outspoken European peer Air France-KLM which has publicly said it was reconsidering operations in the Philippines and was working with lawmakers to reform the tax policy.
Under the National Internal Revenue Code, international air carriers must pay a common carrier tax of 3% of their gross receipts and a 2.5% tax on all cargo and passenger revenues “originating from the Philippines in an uninterrupted flight irrespective of the place of sale or issue… of the ticket.”
The Philippines is the only country that charges airlines these taxes according to the Tourism department.
IATA, for its part, is said to have complained to the Philippines’ Bureau of Internal Revenue, saying that the common carriers tax and the gross Philippine billings being levied on foreign airlines were discriminatory and violated civil aviation pacts.
The industry group even threatened to take legal action against the government for the said taxes.
“The taxes represent a discriminatory tax burden on foreign air operators as the Philippine operators are not subject to the same taxes,” IATA said in a letter addressed to then Internal Revenue Commissioner Sixto S. Esquivias IV, which was in turn quoted by the same cable.
IATA pointed out in the letter that the two taxes, which cost foreign airlines more than P1.88 billion a year, are also against the International Civil Aviation Organization (ICAO) taxation policies.
“These and other taxes have in part or whole caused several foreign airlines to terminate services to Manila in favor of serving other countries with less burdensome tax regimes…,” IATA said.
“One could reasonably expect further reductions in services to the Philippines, in favor of services to neighboring countries,” IATA warned.
“The economic impact to the Philippines due to the loss of these services could greatly exceed the tax currently collected,” IATA said.
IATA closed the letter saying that it is studying “possible legal challenges” against the Philippine government for the said taxes.
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By: Kathleen A. Martin
Source: Business World, Aug. 30, 2011
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