House bill giving tax perks to Bulacan airport project hurdles committee


The Lower House Ways and Means Committee has approved tax privileges provided under the substitute bill that grants San Miguel Corporation (SMC) the legislative franchise to construct, develop, and operate an international airport in Bulacan.

In a hearing on August 26 the Ways and Means Committee approved the provision exempting SMC from the payment of all direct and indirect taxes and fees stemming from the construction, development, establishment and operation of the proposed airport complex in the coastal town of Bulakan, Bulacan during the 10-year construction period.

This includes payment of income taxes, value-added taxes, percentage taxes, excise taxes, documentary stamp taxes, customs duties and tariffs; taxes on real estate, buildings and personal property, business and franchise; and supervision fees.

After the 10-year construction period and during the term of franchise, the San Miguel Aerocity project will remain exempt from income tax and taxes on real estate, buildings and property.

The tax exemptions, however, will expire “as soon as it is determined by a competent authority that the grantee has fully recovered its investment cost…”

The substitute bill was approved by the Ways and Means Committee on August 26 after it was earlier approved by the Committee on Legislative Franchises. Committee reports with significant tax implications are automatically referred to the Ways and Means Committee for discussion and approval.

Tax panel chair and Albay 2nd district representative Joey Salceda explained during the hearing that the tax exemptions in the substitute bill were “significantly more tempered than the original.”

“On its own, the project was already going to be beneficial, as a P740 billion infrastructure investment that will come entirely out of the private sector’s hands. That’s 4% of GDP (gross domestic product),” Salceda said. “In return, we are being asked to provide some tax concessions. By tempering the tax provisions, we made sure that the Filipino people will get even more economic benefits for less taxpayer cost.”

Salceda said the project “will make a lot of money” but that anything beyond the 12% rate of return will be subject to a 50-50 profit-sharing agreement, where, above a 12% profit margin, SMC’s subsidiary in charge of operating the airport will share half of its profits with the government, and all profits will be shared above 14% profit.

Salceda adds that it is critical that “all other income derived outside airport operations should be taxed regularly.”

“There will be hotels and restaurants in the surrounding ‘Airport City,’ so we want to make sure that the franchise’s tax privileges only extend to the airport operations,” Salceda explained.

He said the tax committee’s version “has made the final version more financially and economically beneficial to the Filipino people.”

Moreover, he assured the Committee on Legislative Franchises they will look into “the social impact on the communities directly affected by the project; the estimated forgone revenues due to the tax exemptions to be granted under the measure; the projected employment generation; and the determination of the ‘competent authority’ referred to in Sections 17 and 18,” who will decide when the tax exemptions for the grantee will expire.

Private Public Partnership Center chair Ferdinand Pecson, meanwhile, assured during the hearing that the government will not have financial obligations to SMC.

The unnumbered substitute bill still needs to be approved on second and third reading, and its counterpart measure in the Senate also needs approval.

The Department of Transportation (DOTr) and San Miguel Aerocity in September 2019 signed the concession agreement for the project. This came after the notice of award was handed to SMC in August 2019 after its unsolicited proposal went uncontested.

Under the concession agreement, San Miguel will finance, design, construct, supply, complete, test, commission, and operate and maintain the new international gateway. The project has a concession period of 50 years, which starts after construction of its initial phase is completed. It has a total project cost of P735.63 billion under a build-operate-transfer arrangement.

The airport, which will be built on a 2,500-hectare area in Bulakan, will have a passenger terminal building with a design capacity of 100 million to 200 million passengers per year, four parallel runways that are upgradable to six, and eight taxiways.

Construction of the unsolicited project was targeted to start by December 2019, but SMC president and chief operating officer Ramon Ang said it would be delayed as the project was on hold. DOTr last July said SMC would start construction by October 2020.