JULY 12, 2011

NR # 2463B

Solon seeks removal of Common Carriers Tax (CCT) and Gross Philippine Billings Tax (GPBT) imposed on foreign airlines
A House leader is seeking the removal of the Common Carriers Tax (CCT) and Gross Philippine Billings Tax (GPBT) imposed on international air carriers to boost the countrys tourism, trade, employment, and economic integration with the rest of the world. Rep. Jerry Treas (Lone District, Iloilo City), Chairman of the House Committee on Government and Public Accountability and author of House Bill 4444, said the grossly onerous tax imposed on foreign carriers is one of the main reasons why the number of airlines operating in the country has decreased. The bill to be known as Rationalizing the Taxes Imposed on International Air Carriers Operating in the Philippines, seeks to amend Section 28 of the National Internal Revenue Code of 1997, as amended, by removing the GPBT imposition on international carriers. Treas said the bill provides that any income derived by an international air carrier from doing business in the Philippines shall be exempt from income tax. Likewise, Treas said the bill will also remove the imposition of the three percent tax on the quarterly gross receipts of international air carriers doing business in the Philippines. Treas said the current tax system consists of the CCT, which is three percent of the gross turnover, and the GPBT, which is two-a-half percent of the gross turnover. Treas said the 5.5 percent CCT and GPBT taxes are based on gross turnover and not on gross income or taxable income. Industry margins have rarely reached this percentage. Both CCT and GPBT are levied on all revenues, passengers, cargoes and excess baggage for air transportation, leaving the country, irrespective of the point of the sale of the air transportation, Treas said. Treas further said the CCT and GPBT are also in possible violation of the nondiscrimination principle of the World Trade Organization, which stipulates that a memberstate should not discriminate foreign products, services and nationals. The exit of international carriers from the Philippines, where foreign carriers are taxed, has been in stark contrast to the growth in services experienced by neighboring Asian countries that either give incentives or do not tax foreign carriers. The restricted

markets of China and Japan are liberalizing access and have invested in infrastructure to attract foreign carriers, Treas said. Treas said carriers with extensive global networks have already left the Philippines, shifting their capacity to benefit neighboring countries tourism and trade. Without a healthy airline industry, the countrys tourism will never flourish. All the incentives granted under the Tourism Act of 2009 to raise the countrys capacity to generate investments, employment and reduce poverty will simply be rendered worthless. The same is true for the other government plans to develop export industries and services, Treas said. In 2009, Treas said international tourists contributed at least US$2.3 billion in export receipts of the country. However, potential tourists are now avoiding the country due to the lack of nonstop connections from and to the United States and Europe. Every missing tourist translates into lost revenues and jobs. The lack of non-stop services also negatively impacts air freight, penalizing existing and potential exporters of electronics, fashion items, seafood and vegetables. The taxes increase the air freight cost and business development costs for exporters, particularly the small and medium-sized enterprises from the countryside seeking access in new markets like Europe and the Americas. Elimination of these taxes would result in greater receipts for the Bureau of Internal Revenue from sustained economic activity, Treas said. (30) rbb