The common carriers tax and Philippine billings tax will continue to be levied on international airlines, according to the Department of Finance (DOF).
A recent memorandum from Finance Secretary Cesar Purisima to President Benigno Aquino III pointed out that a change in the tax regime would need congressional approval. It would also mean revenue losses of P2.5 billion for government.
It maybe recalled that foreign airlines as well as the Joint Foreign Chambers of the Philippines (JFC) asked the Philippine government to scrap the 2.5% Philippine billings tax and 3% common carriers tax on cargo and passenger revenues originating from the Philippines, noting that the policy is discriminatory since Philippine-flagged international carriers are not subject to the same taxes.
The JFC is proposing that the tax regime be changed from the current percentage tax to value-added tax zero-rated to provide relief to international carriers and boost international arrivals which, in turn, will benefit tourism, trade, and ultimately government revenues.
The wrangling on the tax issue has resulted in the pullout of the last direct service to Europe from the Philippines operated by Air France-KLM. Starting April 2012, the airline will completely stop its Manila to Amsterdam offering.
“We have reservations on any measure that would involve forgoing the collection of the gross Philippine billing tax and common carriers tax as it would inflict huge fiscal costs on the government,” the DOF said.
“Upfront government revenue loss is on the average P1.6 billion in common carriers tax plus P900 million on gross Philippine billing tax, or a total of P2.5 billion, based on 2004-09 collections.”
Civil Aeronautics Board executive director Carmelo Arcilla told PortCalls at the sidelines of the recent Cargo Economics Conference the pullout of Air France-KLM will mean higher costs for Philippine shippers who will now have to book their cargoes on flights with stopovers.
This week, European Chamber of Commerce vice president for external affairs Henry Schumacher was also quoted as saying that other airlines may follow Air France-KLM out the door if pleas to rationalize the airline tax regime are ignored by government.
Schumacher said the Air France-KLM pullout benefits other Asian hubs that do not charge excessive taxes.
The House of Representatives is currently deliberating House Bill 444 which seeks the exemption of international air carriers from payment of the gross Philippine billing tax and the common carriers tax.
