DoF sets condition before it scraps airline tax

The Department of Finance (DoF) may agree to scrap the 3-percent common carrier’s tax (CCT) on foreign airlines once Congress passes a law that will offset the loss in revenue estimated at P1.6 billion a year.

Finance Secretary Cesar V. Purisima said in a statement that the DoF “subscribe(s) to the position that any revenue loss measure enacted in Congress should at least be compensated by a corresponding revenue gain.”

Air France-KLM has announced it will stop in April 2012 direct flights between Manila and Amsterdam because of the CCT, as well as the 2.5-percent gross Philippines billing tax (GPBT) which are 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 company’s Manila-Amsterdam flight is the last direct link of the Philippines to Europe.

“Our position is consistent with the recent World Bank report, which states that the CCT should be repealed to be consistent with international practice and not hinder growth of tourism sectors,” Purisima said.

“We acknowledge the role of tourism in generating investments, employment and reducing poverty in the country.”

But while the DoF agrees to the repeal of the CCT, Purisima said the GPBT should not be removed because “it is in the nature of income tax.”

The finance chief said freeing international airlines from income taxes would not be in accordance with the basic principle of reciprocity, which governs international taxation.

The foreign airlines, through the Joint Foreign Chambers of Commerce and Industry, has asked President Aquino to certify as urgent a bill pending at the House of Representatives seeking to exempt them from payment of the CCT and GPBT.