DoF junks foreign airlines’ tax relief appeal

The Department of Finance (DoF) shot down the appeals of foreign airlines that operate in the Philippines for tax relief or a change in the type of tax imposed on them.

In a memorandum to President Aquino, Finance Secretary Cesar V. Purisima said the airlines’ requests—coursed through the Joint Foreign Chambers of Commerce and Industry or JFC—needed changes in tax laws and, as such, these should be directed to Congress.

The firms want Malacañang to certify as an urgent administrative measure a bill pending at the House of Representatives seeking the exemption of international air carriers from the payment of the 2.5-percent gross Philippine billing tax (GPBT) and the 3-percent common carriers tax (CCT).

In particular, Air France-KLM has announced it would stop in April 2012 its direct flights between Manila and Amsterdam because of the taxes that were levied on revenues derived from outbound business.

Air France-KLM’s decision follows similar moves made over the last decade by other European airlines.

The JFC has appealed to the President to direct the DoF and the Bureau of Internal Revenue to impose on foreign carriers the value-added tax instead of the current percentage tax.

The foreign business clubs say such a measure would help attain the goal of doubling the number of international visitors as well as boost tourism and trade.

Purisima said foreign airlines mistakenly believe that they no longer have to pay the CCT if they were subject to VAT.

“There is no law exempting from percentage taxes those transactions or taxpayers which are covered by VAT,” the finance chief said. “Hence, if we were to allow an international common carrier to register as a VAT taxpayer, such will not exempt it from the CCT.”

He said businesses that were allowed to be covered by VAT instead of a percentage tax were “marginal traders” who turn in less than P1.5 million in gross sales yearly.

Moreover, Purisima said Malacañang could not effect a change in tax type since this required the approval of Congress.

The GPBT and the CCT “are codal provisions which can be amended or repealed only through an act of Congress,” he said.

Purisima said the proposal to exempt the foreign airlines from the GPBT and the CCT, might need a treaty with concerned countries.

Purisima said granting such exemption would cost the government P2.5 billion in tax revenue yearly.