Problematic exemption from Citira | Inquirer Business
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Problematic exemption from Citira

/ 04:00 AM October 22, 2019

After overcoming the opposition of Philippine Economic Zone Authority (Peza) Director General Charito Plaza to the proposed Corporate Income Tax and Incentives Rationalization Act (Citira), the government’s economic managers may have to deal with another problem.

Acting on the plea of Lufthansa Technik Philippines (LTP), a domestic company engaged in aircraft maintenance, repair and overhaul, Trade Secretary Ramon Lopez said he supported the exemption of aircraft spare parts from import duties and value added tax.


Although imported raw materials are exempt from those taxes in Citira, it is unclear if aircraft spare materials are covered.

As part of its operations, LTP replaces defective parts with imported spare parts and repairs the defective materials. Lopez believes the spare parts should be treated as raw materials and therefore not subject to those taxes.


LTP cannot be faulted for insisting the tax exemption of aircraft spare parts be stated in black and white in Citira and not loosely lumped with imported raw materials.

Under existing jurisprudence, exemptions from tax laws are strictly construed against the claimant. The latter has the burden of proof of showing the exemption is unequivocally provided for in the law.

Claims of implied or indirect exemption from taxes are not allowed because taxes are considered the lifeblood of government and therefore any action that may reduce its collection without clear legal basis is frowned upon.

In light of this policy of strict interpretation, LTP may, if the Citira is enacted into law, find itself hard pressed in convincing the Bureau of Internal Revenue (BIR) that its importation of aircraft spare parts is covered by the Citira exemption.

With high revenue targets to meet, liberality in the assessment and collection of taxes is not one of the virtues of the BIR. It will, figuratively speaking, exact its pound of flesh from all taxpayers whenever the opportunity presents itself.

Considering the slow pace of justice in our country, it would not make good business sense for companies with tax issues with the BIR to pay under protest and later demand a refund either through administrative means or the Court of Tax Appeals.

If LTP, which has been operating in the Philippines for almost two decades, does not get its way on this issue, it may transfer its business elsewhere and, in the process, displace more than 3,000 Filipino aviation professionals.


The economic managers cannot shrug off LTP’s plea as an insignificant blip in Citira’s tax radar or unworthy of serious consideration.

The fact that Lopez took the cudgels for LTP and risked getting the ire of Finance Secretary Carlos Dominquez III meant he found merit in its appeal and had reason to be worried about the implications of its pullout and the loss of jobs.

But giving in to LTP’s appeal may encourage other similarly situated companies, in particular those operating in export processing zones, to demand equal treatment.

Those were the same companies Plaza sought to be exempted from Citira’s tax holiday restrictions until she decided (for still unexplained reasons) to withdraw her opposition to Citira.

If their demand is not granted and LTP succeeds in its appeal, the “discriminated” businesses may go to court and question the legality of Citira for violation of the “equal protection” clause of our Constitution.

Those who may be averse to going through the judicial route and wait for years for their complaints to be resolved may simply pack up and relocate to Asean countries with more favorable investment regulations.

With Citira still pending in the Senate and the senators unlikely to be stampeded into approving it without close scrutiny, the economic managers have to come up with a viable course of action on LTP’s appeal and, whichever way it goes, the expected reaction from similarly situated companies.

With the way things are going, the government’s tax reform may not be able to meet its self-imposed deadlines and financial targets.

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TAGS: Business, CITIRA
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