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MANILA, Philippines – Netherlands-based airline KLM will reconsider flying to Manila if the Aquino administration makes good on its promise to remove taxes currently hampering the economic viability of foreign carriers flying to the Philippines, an airline official said.
This developed even as the Board of Airline Representatives (BAR), an organization of some 30 foreign carriers with services to the Philippines, commended the Aquino administration for implementing reforms liberalizing the country’s aviation sector.
Cees Ursem, regional manager for KLM in the Philippines and the Far East, said the airline “welcomes the developments in the tax issue and is looking forward to the final implementation of abolishing these taxes for the benefit of tourism, trade, and the network of overseas Filipinos. This decision will definitely help to reconsider our operations in the future and continue our 60 years of uninterrupted services to the Philippines.”
The House of Representatives has already approved on third and final reading House Bill No. 6022 entitled “Rationalizing the Taxes on International Air Carriers operating in the Philippines,” which removes the 3-percent common carriers tax (CCT) applied on passengers and cargo, and eliminates the 2.5-percent tax on gross Philippine billings (GPBT) as long as the home countries of the foreign carriers do the same for the Philippines. Sponsored by Rep. Jerry Treñas of Iloilo City, the bill seeks to amend Sections 28 (A) (3) (a) , 108 (B) (6) and 118 of the National Internal Revenue Code of 1997, as amended.
Senator Ralph Recto, chairman of the Senate Ways and Means committee, is also expected to file a new bill soon that would reflect the results of the public hearing held last February 2 on his earlier proposed legislation, which also calls for the removal of the CCT and GPBT.
The Department of Finance estimates the government will lose some P1.6 billion in revenues a year, from the scrapping of the CCT.
Ursem lamented that “the termination of our direct flights meant the loss of direct access to the [European Union] markets for Philippine exporters. Other [Association of Southeast Nations] economies have at least two daily flights to the EU market, allowing them to experience double-digit growth in their exports. Indeed, we would like to mount those direct services again and become a major partner, just like the rest of the international airlines, in reaching the export development targets of the Philippines to the EU.”
Data from the Civil Aeronautics Board indicated that KLM used to carry 3.5 million kilos of air cargo directly from Manila to Amsterdam, and for distribution to its extensive European network.
KLM made its last direct flight from Manila to Amsterdam on March 25, complaining that these aviation taxes were affecting the economic viability of its services in the Philippines. At present, there are no more direct flights between the Philippines and Europe, compared to the 22 frequencies a week recorded in 2002.
On March 27, Qatar Airways likewise terminated its direct flights between Doha and Cebu, citing the same taxes and higher fuel prices as the reason for its exit from the island province.
In the same BAR press statement, Abdallah Okasha, Philippines country manager of Qatar Airways, said: “Cebu is a destination with tremendous potentials for tourism and trade. We closed our Cebu operations because our operations have become expensive relative to all other destinations where we have a presence, particularly in emerging Asian markets where we are not burdened with such taxes.”
‘Taxes make PH most expensive destination’
The BAR added these aviation taxes represent the “major reason behind the slow development in international air access in the country. International airlines find the Philippines the most expensive destination for their investments due to these taxes.”
Meanwhile, BAR First Vice Chairman Steven Crowdey told InterAksyon.com that the approval of HB6022 was “indeed positive and exciting news to the international airline community that has been monitoring the progress in legislation, after exhausting all possible administrative measures. We thank the Aquino administration for supporting the approval of the bill in the Lower House.”
He added that the removal of these taxes will speed up the development of the secondary gateways of the country as envisioned in the “Pocket Open Skies” policy of the Aquino administration. Under such policy, foreign carriers are able to land and depart from provincial international airports. This enables the carriers to bring in foreign investors and tourists directly to their destinations, instead of passing through Manila. Crowdey is also general manager for Australia, Micronesia and the Philippines for Delta Air Lines Inc., a US carrier.
Sang Woo Noh, regional manager for the Philippines of South Korea’s Asiana Airlines, added that this policy is “proof” of the Aquino administration’s “global openness.”
Enumerating the ways the administration has been addressing the concerns of foreign carriers, Noh also noted that the Department of Transportation and Communications is already addressing the backlog in airline infrastructure. He added that the Economic Development Cluster of the Aquino Cabinet has already approved the implementation of the 24/7 operations by Customs, Immigration, and Quarantine (CIQ) personnel.
“Again, this is a landmark policy reform happening for the first time under President Aquino’s office,” he said, but stressed that the aviation tax issue “is the remaining stumbling bloc to realizing the expected benefits of open skies.”
For his part, Okumua Daisuke, regional manager of Japan Airlines said: “Japan is indeed monitoring the developments in this issue. Last March 2012, Japan raised a question about Philippines taxes on foreign carriers in view of the observance of the bilateral tax treaty.”
According to Japan’s Ministry of Finance, its airlines are exempted from taxes in over 38 countries. In the case of the Philippines, “income from the operation of ships or aircraft is taxed in the other signatory nation at 60 percent of the normal rate,” noted an MOF manual on Japan’s tax treaties with other countries.
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