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Philippines Urged To Abolish Common Carrier Tax

by Mary Swire,, Hong Kong

02 August 2012

The Board of Airlines Representatives is urging the Philippines to abolish, as soon as possible, the common carrier’s tax (CCT) on airlines flying out of the country, to benefit both the foreign trade and tourism sectors.

In May this year, the Philippine House of Representatives approved a bill which sought to “rationalize” the taxes on international air carriers, which are levied on all revenues, passengers, cargoes and excess baggage leaving the Philippines.

For some time, airlines have lobbied for, at least, a cancellation of the 3% CCT to which they are subjected. That lobby has now intensified with the government being asked to exert pressure on the Senate, whose approval is necessary before the bill can be finally approved.

The House-approved bill provides that international air carriers doing business in the country would not be liable to pay the CCT. It also stipulates that they would be exempt from the 2.5% gross Philippine billings tax (GPBT), if reciprocal exemptions can be arranged with their relevant foreign jurisdictions.

It also includes a provision that the transport of passengers and cargo by domestic and international air or sea carriers from the Philippines to a foreign country shall be subject to 0% value-added tax.

Those 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 this year, due to the high taxes it paid for loading passengers in the Philippines, but is reported to be interested in reinstating it, if the tax cuts come into effect.

It has been calculated that the CCT and GPBT have 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 CCT/GPBT removal could be measured in thousands of new jobs, increased revenue from more foreign tourists, and lower cargo transport costs for its exports.

TAGS: tax | value added tax (VAT) | air passenger duty (APD) | law | aviation | Philippines | travel and tourism | legislation | tax rates | legislation amendments | trade

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