Rules on tax breaks for foreign carriers OK’d

The Bureau of Internal Revenue has issued the implementing guidelines for the recently enacted law granting tax perks to foreign carriers.

With the release of the guidelines, contained in Revenue Regulation 15-2013, the carriers can now avail themselves of the tax breaks provided under Republic Act 10378, which was signed into law by President Aquino in March.

The fiscal incentives include exemption from the 12-percent value-added tax (VAT) and from the 2.5 percent gross Philippine billings tax (GPBT). The latter is a form of income tax supposedly applied to international airlines or shipping companies.

The tax incentives were meant to help boost the country’s tourism sector. The lowering of taxes is seen to result in the reduction of fares and, therefore, increase demand for travel.

“The policy behind the rationalization of taxes on international carriers is to improve the competitiveness of the Philippine tourism industry by encouraging more international carriers to maintain flight and shipping operations in the country and by the eventual reduction of international plane and ship fares,” the BIR said in the revenue regulation.

In the case of the 2.5-percent GPBT, the exemption is not outright. International carriers must submit documentary requirements to avail themselves of the exemption from the said tax.

A requirement for exemption from the GPBT is a certification that Philippine carriers doing business in the country of the foreign airline concerned also enjoy income tax exemption granted by that country’s internal revenue office.

This means the tax incentives are to be given to international airlines and shipping firms on the basis of reciprocity.

“Reciprocity requires that Philippine carriers operating in the home country of an international carrier are also enjoying income tax exemption,” the BIR said.

In the absence of reciprocity, an international carrier may apply for a lower rate of GPBT, or 1.5 percent, if its home country has an existing tax treaty with the Philippines.

In the meantime, the regulation states that international carriers are subject to the 3-percent common carriers tax on their gross receipts.

The signing into law of RA10378 came amid the Philippine government’s push to boost the tourism sector.

Despite its rich natural resources and tourist attractions, the Philippines continues to lag behind its neighbors in terms of tourist arrivals. The number of foreign tourists to the Philippines, however, is growing.