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Philippines Debates Removal Of Airline Taxes

by Mary Swire,, Hong Kong

13 December 2011

The Philippines Department of Finance (DOF) has recently written letters to the Ways and Means Committees of both the House of Representatives and Senate to inform them that it “interposes no objection” to the repeal of country’s common carrier’s tax (CCT), provided that countervailing tax revenue-raising measures can be identified.

The Philippines tax code provides for a 3% CCT and a 2.5% gross Gross Philippine Billings Tax (GPBT) on all revenues, passengers, cargoes and excess baggage leaving the Philippines.

The DOF has estimated that a repeal of the CCT would cost some PHP1.6bn (USD36.5m) annually in lost revenue. Following the principle of fiscal responsibility, “we subscribe to the position that any revenue loss measure enacted in Congress should at least be compensated by a corresponding revenue gain,” the Finance Secretary Cesar V. Purisima said.

Legislators in both houses of Congress have been fast-tracking the passage of measures that would remove the CCT and GPBT charged against international airlines, after a report revealed Air France-KLM’s plan to remove direct flights to Amsterdam from Manila early next year. That airline’s Manila-Amsterdam flight is the last direct link from the Philippines to Europe.

Aside from any additional income that repeal of the two taxes would bring to the Philippines from added tourists arriving in the country, it has also been projected that an exemption of international air carriers from paying the GPBT and CCT would add considerably to the country's export earnings.

“Our position is consistent with the recent World Bank report which states that CCT should be repealed to be consistent with international practice and not hinder growth of tourism,” Purisima said. However, he added, while “we acknowledge the role of tourism in generating investments, employment and reducing poverty in the country,” as far as GPBT is concerned “it is in the nature of income tax” and therefore should not be dropped.

“We do not support (GPBT’s) elimination. Freeing international airlines from income taxes is not in accordance with the basic principle of reciprocity which governs international taxation,” he explained.

With regard to his stipulation that an alternative revenue source should be found if CCT was to be eliminated, he stressed that it was the DOF’s duty “to protect the country’s revenue base. Fiscal responsibility should be recognized in all discussions. Expanding our revenue base will enable government to support key social and economic services that will further improve our country’s competitiveness.”

TAGS: compliance | tax | business | tax compliance | law | aviation | corporation tax | Philippines | travel and tourism | legislation | tax rates | legislation amendments

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