DTI wants aircraft parts exempt from taxes

The Department of Trade and Industry (DTI) supports the appeal of Lufthansa Technik Philippines (LTP) to keep the tax exemption of aircraft spare parts in the proposed Corporate Income Tax and Incentives Rationalization Act (Citira).

Under the proposed tax package, imported raw materials will remain exempted from import duties and value-added tax.

The bill did not specify, however, if aircraft spare parts would also remain exempted from these taxes.

LTP is seeking clarification, given the importance of spare parts to its business of aircraft maintenance, repair and overhaul (MRO).

It serves its global aviation clients, replacing defective parts with imported spare parts while sending the defective part back to the shop for repair.

LTP president and CEO Elmar Lutter said in a previous interview that without the current incentives, the company might have no choice but to shut down its operations.

“That has to be no tax right from the start because they export. The spare parts there is like a raw material,” Trade Secretary Ramon Lopez said in an interview.

Lopez said the new version of the Citira should specify that the provisions on the spare parts would only refer to the MRO industry.

“I will support that because that’s their business model,” he said.

The Citira seeks to slowly lower the corporate income tax from being the highest in Southeast Asia, while rationalizing tax incentives for companies like LTP, keeping these perks performance-based and time-bound.

LTP is not a stranger to time-bound incentives in general.

Lutter, in a previous email interview, said that their investment in Puerto Rico and the United States, for example, had a preferential income tax of at most 30 years.

“We respect the government’s goal to make fiscal incentives time-bound,” Lutter said.

“We cannot accept, though, to make free-trade-zone provisions time-bound, because the business model depends on them perpetually and the international competition is operating like that all over the world,” he added.

The company, which has been here for close to two decades, has more than 3,200 highly qualified Filipino aviation professionals.

It has already invested $270 million in infrastructure and personnel training in the country.

LTP shares the concerns of other companies located in economic zones, who fear higher costs of doing business because of the current version of the Citira that gives exporters only a small window of time to adjust to new costs.

Among other requests from the government, the company wants a 10-year transition period.