Republic of the Philippines |
HOUSE OF REPRESENTATIVES a
Quezon Gity, Philippines ©,

SIXTEENTH CONGRESS
Second Regular Session

HOUSE BILL NO. _ 561 1

INTRODUCED BY REP. JOSEPH GILBERT F. VIOLAGO

EXPLANATORY NOTE

Philippine Airlines, Inc. (PAL) was originally established as a private
corporation under the general laws of the Republic of the Philippines in
February 1941. The government, through the Government Service Insurance
System (GSIS), acquired the majority shares in PAL in November 1977. As
such, PAL was then a government-owned and controlled corporation when
Presidential Decree No. 1590, “An Act Granting a New Franchise to Philippine
Airlines, Inc. to Establish, Operate, and Maintain Air-Transport Services in the
Philippines and Other Countries" was enacted on January 1, 1978, As the
official flag carrier of the country, PAL was granted various tax privileges and
exemptions under its franchise.

In January 1992, the government opted to privatize PAL, with the sale
of its 67% share to local consortium PR Holdings. Since then until the present
date, the franchise of PAL has not been amended. Although already a private
corporation, PAL continues to enjoy the same rights and privileges under the
terms and conditions under its franchise.

For two decades following the grant of its franchise by P.D. No. 1590,
PAL was only being held liable for the basic corporate income tax or franchise
tax, whichever was lower. Its payment of either tax was also in lieu of all other
taxes, except real property tax as provided in Section 13 of P.D. No. 1590.

This house bill seeks to amend Section 13 of P.D. No. 1590. To level
the playing field with the rest of the private air carriers in the airline industry, it
is necessary to withdraw the tax privileges and exemptions which have been
granted to PAL as a government-owned and controlled corporation. In
consonance with the equal protection of the law clause — since PAL is already
a private corporation, it should be subject to the same taxes, duties, charges
royalties, and fees, as that imposed on other private corporations in the airline
industry.


As held in Ichong v. Hernandez! — The equal protection of the law
clause is against undue favor and individual or class privilege, as well as
hostile discrimination or the oppression of inequality. It is not intended to
prohibit legislation which is limited either [by] the object to which it is directed
or by [the] territory within which it is to operate. It does not demand absolute
equality among residents; it merely requires that all persons shall be treated
alike, under like circumstances and conditions both as to privileges conferred
and liabilities enforced,

In view of the foregoing, passage of this house bill, amending Section
13 of P.D. No. 1590 is urgently sought.

iD,
JOSEPH GILBERT F. VIOLAGO

Representative
2" District, Nueva Ecija

 Inchiong v. Hernandez, G.R. No. L-7995, May 31, 1957


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Philippines

SIXTEENTH CONGRESS
Second Regular Session

5611

HOUSE BILL NO.

INTRODUCED BY REP. JOSEPH GILBERT F. VIOLAGO

AN ACT AMENDING SECTION 13 OF THE FRANCHISE GRANTED TO THE
PHILIPPINE AIRLINES, INC. UNDER PRESIDENTIAL DECREE NO. 1590

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled.

SEC. 1. Section 13 of Presidential Decree No, 1590 is hereby amended to read as
follows:

{In consideration of the franchise and rights hereby granted, the grantee shall
pay to the Philippine Government during the life of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower tax:

(a) The basic corporate income tax based on the grantee's annual net taxable
income computed in accordance with the provisions of the National Internal
Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues derived by the
grantee from all sources, without distinction as to transport or nontransport
operations; provided, that with respect to international air-transport service,
only the gross passenger, mail, and freight revenues from its outgoing flights
shall be subject to this tax.

The tax paid by the grantee under either of the above alternatives shall be in
lieu of all other taxes, duties, royalties, registration, license, and other fees
and charges of any kind, nature, or description, imposed, levied, established,
assessed, or collected by any municipal, city, provincial, or national authority
of government agency, now or in the future, including but not limited to the
following.

1. All taxes, duties, charges, royalties, or fees due on local purchases by the
grantee of aviation gas, fuel, and oil, whether refined or in crude form, and
whether such taxes, duties, charges, royalties, or fees are directly due from or
imposable upon the purchaser or the seller, producer, manufacturer, or
importer of said petroleum products but are billed or passed on the grantee
either as part of the price ar cost thereof or by mutual agreement or other
arrangement; provided, that all such purchases by, sales or deliveries of
aviation gas, fuel, and oil to the grantee shall be for exclusive use in its
transport and nontransport operations and other activities incidental thereto;


2. All taxes, including compensating taxes, duties, charges, royalties, or fees
due on all importations by the grantee of aircraft, engines, equipment,
machinery, spare parts, accessories, commissary and catering supplies,
aviation gas, fuel, and oil, whether refined or in crude form and other articles,
supplies, or materials; provided, that such articles or supplies or materials are
imported for the use of the grantee in its transport and transport operations
and other activities incidental thereto and are not locally available in
reasonable quantity, quality, or price;

3. All taxes on lease rentals, interest, fees, and other charges payable to
lessors, whether foreign or domestic, of aircraft, engines, equipment,
machinery, spare parts, and other property rented, leased, or chartered by the
grantee where the payment of such taxes is assumed by the grantee;

4, All taxes on interest, fees, and other charges on foreign loans obtained and
other obligations incurred by the grantee where the payment of such taxes is
assumed by the grantee;

5. All taxes, fees, and other charges on the registration, licensing, acquisition,
and transfer of aircraft, equipment, motor vehicles, and all other personal and
real property of the grantee; and

6. The corporate development tax under Presidential Decree No. 1158-A.

The grantee, shall, however, pay the tax on its real property in conformity with
existing law.

For purposes of computing the basic corporate income tax as provided
herein, the grantee is authorized:

(a) To depreciate its assets to the extent of not more than twice as fast the
normal rate of depreciation; and

(b) To carry over as a deduction from taxable income any net loss incurred in
any year up to five years following the year of such loss.]

“SECTION 13. THE GRANTEE, ITS SUCCESSORS OR ASSIGNS, SHALL
BE LIABLE TO PAY THE SAME TAXES ON THEIR REAL ESTATE,
BUILDINGS AND PERSONAL PROPERTY, EXCLUSIVE OF THIS
FRANCHISE, AS OTHER PERSONS OR CORPORATIONS ARE NOW OR
HEREAFTER MAY BE REQUIRED BY LAW TO PAY. IN ADDITION
THERETO, THE GRANTEE, ITS SUCCESSORS OR ASSIGNS, SHALL PAY.
THE VALUE-ADDED TAX UNDER REPUBLIC ACT NO, 7716, AS
AMENDED: PROVIDED, THAT THE GRANTEE, ITS SUCCESSORS OR
ASSIGNS, SHALL CONTINUE TO BE LIABLE FOR INCOME TAXES
PAYABLE UNDER TITLE Il OF THE NATIONAL INTERNAL REVENUE
CODE PURSUANT TO SEC. 2 OF EXECUTIVE ORDER NO. 72 UNLESS
THE LATTER ENACTMENT IS AMENDED OR REPEALED, IN WHICH
CASE THE AMENDMENT OR REPEAL SHALL BE APPLICABLE
THERETO."

SEC. 2. Separability Clause. — Should any provision of this Act be declared invalid
or unconstitutional, the validity or constitutionality of the other provisions shall not be
affected thereby.


SEC. 3. Repealing Clause. — All laws, decrees, executive orders, rules and
regulations, and other issuances or parts thereof which are inconsistent with the
provisions of this Act are hereby repealed, amended or modified accordingly.

SEC. 4, Effectivity. — This Act shall take effect fifteen (15) days after its publication
in at least two (2) newspapers of general circulation.

Approved,