IATA urges gov't to scrap punitive taxes on foreign airlines

Manila Bulletin
October 28, 2011
By Emmie V. Abadilla

MANILA, Philippines — The International Air Transport Association (IATA) urged the government to scrap P2 billion per year punitive taxes and P1-billion overtime charges slapped on the aviation sector prompting foreign carriers to relocate to neighboring countries.

The most recent was KLM’s cancelling its direct services to Manila “due to the unsustainable cost base of operating in Philippines.” This will greatly inconvenience Filipino travelers who will now have no direct flights to Europe as well as Europeans and other visitors coming from the region who want to visit or do business in the country.

As a result of the cut in airline services, the Philippines has become less convenient to visit, both for business or pleasure, IATA stressed. Trade, tourism and in-country employment stand to suffer while aviation growth among neighboring countries grows stronger.

IATA balked at punitive and discriminatory taxes imposed on foreign carriers operating in the country, principally the Common Carrier Tax (CCT) and the Gross Philippine Billings (GPB).

The CCT is a 3% tax on quarterly gross receipts equivalent to the valueadded tax, which would have been zero rated since the services are consumed outside of the Philippines. The GPB is a 2.5% tax on gross Philippine billings equivalent to an income tax.

Both taxes apply regardless of whether the tickets or airway bills are sold in the Philippines, or outside and cost the airline industry P2 billion annually.

IATA strongly opposed both taxes for being discriminatory. Philippine operators are not subject to the taxes, which violate the World Trade Organization (WTO) rules because they serve as barriers to entry.

The taxes also contravene International Civil Aviation Organization (ICAO) taxation policies, which state that international air transport shall be exempt of from taxes.