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Philippines Scraps International Airlines Tax

by Mary Swire, Tax-News.com, Hong Kong

11 March 2013


The Philippine President Benigno S. Aquino has signed into law a bill removing the 3% common carrier’s tax (CCT) on foreign airlines operating in the Philippines, in order to reduce the prices of tickets, bring more tourists to the country and generate significant job-creating activity for the tourism industry.

The Government has been under pressure for some time from the airline, tourism and foreign trade sectors to abolish the CCT, which has been levied on all revenues, passengers, cargoes and excess baggage leaving the Philippines. International airlines will also be exempt from value added tax when carrying passengers.

The Philippines’ taxes have caused a total withdrawal of foreign airlines, one by one, from providing direct flights to Manila. Air France-KLM dropped the only remaining direct flight from Manila to Amsterdam in March last year, due to the high taxes it paid for loading passengers in the Philippines.

It had been calculated that the taxes imposed by the Philippines increased air travel costs significantly for the marginally-profitable airline industry and for the highly price-sensitive leisure traveller, especially for a country where 98% of tourists arrive by air. It is said that the benefits of the tax removal could be measured in thousands of new jobs, increased revenue from more foreign tourists, and lower cargo transport costs for its exports.

A statement by the Presidential spokesperson Edwin Lacierda said that the removal of the tax came “on the heels” of the International Civil Aviation Organization’s lifting of the Significant Safety Concerns imposed on the country in 2008, in recognition of Philippine efforts to comply with international aviation safety standards, and the news that the Philippines jumped 12-notches in the Travel and Tourism Competitiveness Report 2013 of the World Economic Forum due to “policy improvements supporting the industry.”

The Government has deemed tourism a priority in national development, as it creates jobs, particularly in the service sector. While the abolition of the CCT will reduce tax revenue in the short-term, it is hoped that increased funds brought in by additional tourists will lead to a rise in other tax collections.

The Department of Tourism (DOT) welcomed the CCT’s abolition that “will certainly help improve and enhance the country’s competitiveness in the international travel arena. May this enhancement serve as an invitation to international air carriers, especially those covering long-haul routes, to make the Philippines a part of their primary route offering to the world.”

“This,” it was added, “is just one of the reform measures being undertaken by the Aquino Administration and the DOT, in coordination with other agencies, in improving market access and connectivity to the Philippines towards the achievement of 10m foreign visitor arrivals by 2016.”

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

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