DOF: No objection to removing common carrier's tax if Congress passes compensatory revenue measure

After consultations with the Department of Tourism, the Department of Finance recently wrote letters to House Committee on Ways and Means Chair Hermilando I. Mandanas (2nd District of Batangas) and Senate Committee on Ways and Means Chair Ralph G. Recto, to inform them that the Department of Finance "interposes no objection" to the repeal of common carrier's tax "provided that countervailing revenue sources/measures shall be identified" to recoup an estimated P1.6 billion in losses.

Following the principle of fiscal responsibility, "we subscribe to the position that any revenue loss measure enacted in Congress should at least be compensated by a corresponding revenue gain," Finance Secretary Cesar V. Purisima said.

Section 118 of the National Internal Revenue Code of 1997 provided for the 3 percent common carrier's tax of the airlines' and shippers' quarterly gross receipts and a 2.5 percent gross Philippine billings tax on their operations in the Philippines.

Legislators in both houses of Congress have been fast tracking the passage of separate measures that would remove the 5.5 percent common carrier's tax and GPBT charged against international airlines after a report revealed Air France-KLM's plan to remove direct flights to Amsterdam from Manila early next year.

The airline's Manila-Amsterdam flight is the last direct link of the Philippines to Europe.
"Our position is consistent with the recent World Bank report [last June] which states that common carrier's tax should be repealed to be consistent with international practice and not hinder growth of tourism sectors," the Finance chief explained.

"We acknowledge the role of tourism in generating investments, employment and reducing poverty in the country," he added.

However, as far as GPBT is concerned, Purisima believes "it is in the nature of income tax" and therefore should not be dropped.

"We do not support its elimination … Freeing international airlines from income taxes is not in accordance with the basic principle of reciprocity which governs international taxation," he explained.

"Indeed, there is no compelling reason to remove the GPBT as other countries are imposing the same," Purisima said without elaborating.

"As fiscal managers, it is our duty to protect the country's revenue base. Fiscal responsibility should be recognized in all discussions. Expanding our revenue base will enable government to support key social and economic services that will further improve our country's competitiveness," he said. -Official Gazette — ARA