August 02, 2012

Get rid of carriers’ taxes, Aquino prodded

THE 30-strong organization of foreign carriers with routes to the Philippines has urged President Aquino to put more teeth to his tourism advocacy and boost other economic sectors by certifying as “urgent” a new bill that will be filed in the Senate. The bill aims to eliminate current taxes that supposedly hamper the carriers’ operations in the country.

Steven Crowdey, first vice chairman of the Board of Airline Representatives (BAR), told the BusinessMirror, “The repeal of these taxes will help accelerate the development of the secondary gateways of the Philippines under [Mr. Aquino’s] ‘pocket open skies’ policy to benefit both tourism and trade investments. We hope that this bill will be certified as urgent by the Office of the President and that the legislative process will be completed within the year 2012 under the current 15th Congress.”

(Steven Crowdey, BAR First Vice Chairman, and GM for Australia, Micronesia and the Philippines for Delta Air.)

Crowdey said an instruction from the President to the Senate to pass the new bill quickly would help the foreign carriers “plan for capacity in the next three to five years to service the needs of the tourists, exporters, importers, overseas Filipino workers and the general riding public.” Crowdey is also general manager for Australia, Micronesia and the Philippines for Delta Air Lines Inc., a US carrier.

Sen. Ralph Recto, chairman of the Senate Ways and Means Committee, is expected to file a new bill soon that would reflect results of a public hearing held February 2 this year on his earlier proposed legislation to remove the 3-percent common-carriers tax (CCT) and the 2.5-percent tax on gross Philippine billings (GPBT) imposed on foreign carriers, which he filed in November 2011. Recto, however, could not be reached for comment as of press time.

The Aquino administration has been pinning its hopes on the tourism sector as a major driver of economic growth for the country. It aims to attract 10 million foreign tourist arrivals by 2016, the year the President steps down from office.

The BAR, in a press statement on July 25, commended the administration for the aviation reforms it has adopted, foremost of which is the “pocket open skies” policy, which “proves” the government’s “global openness.” The policy allows foreign carriers to land in provincial international airports, thus bringing more foreign tourists and businessmen directly to their intended destinations, instead of having to pass through Manila.

Sang Woo Noh, regional manager for the Philippines of South Korea’s Asiana Airlines, said, “The airport infrastructure backlog is now being addressed by the [Department of Transportation and Communications]. The Economic Development Cluster of the Cabinet has already approved the implementation of the 24/7 operations by [Customs, Immigration and Quarantine] personnel. Again, this is a landmark policy reform happening for the first time under President Aquino’s office. The tax issue is the remaining stumbling bloc to realizing the expected benefits of open skies.”

In a letter to Mr. Aquino on April 13, Anthony Tyler, director general and chief executive officer of the International Air Transport Association (Iata), also appealed to the President to certify the new Senate bill as urgent as doing so will “send the signal to the global airline community that the Philippines under the leadership of your administration is finally open to global business and investments.”

Citing studies done by economic think tank Oxford Economics and the Iata, Tyler said “the aviation impact in the Philippines is comparatively lower than many other countries in the region, thus indicating the untapped aviation and tourism potentials…. Abolishing these taxes will reduce the likelihood that additional airlines will remove the Philippines from their network or further downsize their operations.”

The Iata is an international trade body representing 240 airlines around the world, which account for 84 percent of global air traffic.

The House of Representatives approved on third and final reading House Bill (HB) 6022 on May 21, which also removes the CCT applied on passengers and cargo and eliminates the GPBT as long as the home countries of the foreign carriers do the same for the Philippines. Entitled “Rationalizing the Taxes on International Air Carriers Operating in the Philippines,” HB 6022, sponsored by Rep. Jerry Treñas of Iloilo, seeks to amend Sections 28 (A) (3) (a), 108 (B) (6) and 118 of the National Internal Revenue Code of 1997, as amended.

Crowdey said the BAR was grateful that the President had certified as urgent HB 6022. Such certification, he added, pushed congressmen to speedily act on it.

(Qatar Airways terminated its Doha-Cebu flights in March, claiming it was burdened by Philippines aviation taxes. Photo from airline's web site.)

Meanwhile, Cees Ursem, regional manager for KLM in the Philippines, said in the same press statement issued by the BAR that recent developments on the airline-tax issue will “definitely help to reconsider our operations in the future and continue our 60 years of uninterrupted services to the Philippines.”

KLM stopped flying directly from Amsterdam to Manila in March this year, saying taxes were affecting the economic viability of the carrier’s operations in the Philippines. “There are no more direct connections [from the Philippines] to Europe today [compared to 22 frequencies per week a decade ago], and carriers with long haul and extensive global and regional connection have left the Philippines, citing these taxes as a major reason for their exit,” the BAR said.

Also in March, Qatar Airways terminated its Doha-Cebu connection for the same reason. The BAR, quoting Abdallah Okasha, Philippine 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 presence, particularly in emerging Asian markets where we are not burdened with such taxes.”

Crowdey said “there is no distinction between CCT for passenger and cargo on any passenger carriers’ financial bottom line. Removing CCT for cargo also goes toward the goal of easing connectivity for the Philippines for the betterment of tourism. The repeal of the CCT for both passenger and cargo will help improve our margins and therefore enable us to increase our capacity to the Philippines rather than to neighboring countries.”

He added, “Ease of access to a location is a critical factor in decisions about where to establish offices, particularly for shared services, and factories. Additional frequencies and capacity will be used by exporters and will tend to lower freight rates, thereby enhancing export competitiveness. Access to more non-stop destinations will provide new markets for exports, particularly for agribusiness and other time-sensitive commodities.”

(This piece was originally published in the BusinessMirror on July 31, 2012. Photo of Steven Crowdey courtesy Delta Airlines.)

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