Return of int’l air carriers to PH expected

MANILA, Philippines—Several European and American airlines are expected to return to the Philippines after the government’s removal of “discriminatory” taxes on foreign carriers, the country’s leading tourism industry group said.

The Philippine Travel Agencies Association (PTAA) said the removal of the common carriers tax (CCT) and gross Philippine billings (GPB) imposed on foreign airlines would boost efforts to turn the country into a major aviation hub for Southeast Asia.

In Davao City, President Aquino on Thursday signed Republic Act No. 10374 exempting foreign carriers operating in the country from the payment of certain taxes.

The President signed RA 10374 at the newly opened SMX convention center in Lanang, where some 600 local and foreign delegates gathered for the Philippine MICE Conference. MICE stands for meetings, incentive travel, conventions and exhibitions/events.

With the signing of the law, the President expects the government to meet its target of 10 million foreign visitors a year by 2016, up from 4.3 million in 2012, as he sees “millions of our peoples [having] greater freedom in planning their trips.”

Officials expressed hope that the new law would usher in an era of lower fares for aircraft and transport vessels because foreign carriers would be exempt from paying the 3-percent common carriers tax imposed on passengers. Carriers would also be spared from the payment of the value-added tax for the transport of passengers.

“The travel industry has long waited for the scrapping of the CCT and GPB,” PTAA president John Pail Cablaza said in a statement.

“This will definitely boost the Philippine tourism industry, as unnecessary barriers to entry into the country have been removed,” he said.

The PTAA said it expected leading international carriers—including Cathay Pacific, Delta Airlines, Etihad, Air France/KLM, Kuwait Airlines, Lufthansa/Swiss Airlines, Qatar Airlines and Singapore Airlines—to add more flights into the country by the middle of this year.

Combined, the CCT and GPB translate to a 5.5-percent tax on all revenues by foreign airlines for flights to and from airports in the Philippines. Several foreign airlines have abandoned the Philippine market or have reduced operations in the country due to the CCT and GPB.

Last year, Qatar Airlines stopped its direct flights between Doha and Cebu, citing the tax burden that was imposed only on foreign carriers.

Last link to Europe

Before that, Air France/KLM halted its direct service between Amsterdam and Manila—the last remaining direct flight between the Philippines and Europe—also due to the CCT and GPB.

Both airlines said the two taxes made the country an uncompetitive travel destination compared with major points in Southeast Asia.

The PTAA has been actively supporting for the past two years the calls of various local and foreign associations, including the Board of Airline Representatives, to fix the onerous tax on airlines.

Reciprocity

RA 10374 is an “act recognizing the principle of reciprocity as basis for the grant of income tax exemptions to international carriers and rationalizing other taxes imposed thereon by amending Sections 28 (a) (3) (a), 109, 118 and 236 of the National Internal Revenue Code (NIRC), as amended, and for other purposes.”

It is a consolidated version of Senate Bill No. 3343 and House Bill No. 6022.

The law amended the NIRC provisions on rates of income tax on foreign corporations, exempt transactions and percentage tax on international carriers.

In his speech, the President said the law “will exempt all international and shipping carriers from paying the 3-percent common carriers tax on receipts and income derived from transporting passengers.”

Aquino said the carriers were also exempt from paying tax on the gross revenue derived from the carriage of passengers, cargo or mail, provided there was reciprocity—the same exemption is granted by the carrier’s home country to the Philippines.

“This will actually mean an initial loss in revenue for us but it is ultimately a strategic move. Airlines have long asked for this measure since it will bring in more traffic and facilitate connectivity among our countries.

“With this [law], everybody wins: from our aviation industries to our tourism industries, to the millions of our peoples who will have greater freedom in planning their trips. So, I would like to thank our legislators who worked on this,” Aquino said.

The President joked that in light of all this good news, Tourism Secretary Ramon Jimenez would have to consider revising his targets again.

“We believe that would make his work in the Department of Tourism even more fun,” said the President, eliciting chuckles from the audience.

The signing of RA 10374 was witnessed by Sen. Franklin Drilon, the principal author and sponsor of the Senate version of the bill, Speaker Feliciano Belmonte Jr. and the House members who authored and/or sponsored the counterpart bill—Representatives Isidro Ungab, Jerry Treñas, Milen Garcia-Albano, Maricar Zamora, Anthony del Rosario, Mel Senen Sarmiento and Wesley Gatchalian.

Drilon predicted that the removal of the taxes “will improve the present situation where our tax policies seem to directly contravene our tourism goals.”

New jobs

The International Air Transportation Association earlier said the scrapping of the two taxes would create thousands of new jobs and lead to as much as $78 million (P3.3 billion) in additional revenues from increased tourist arrivals.

The international industry group also cited a study by Oxford Economics in 2012 that showed that the Philippine air travel sector made up about 0.4 percent of the country’s gross domestic product (GDP), or a direct contribution of P35.5 billion.

When taking into account the industry’s contribution to tourism, the overall revenue rose to P192.2 billion, or 2.4 percent of the GDP.