Republic of the Philippines
House of Representatives

EIGHTEENTH CONGRESS
First Regular Session

HOUSE BILL No, 3942

Introduced by Rep. Luisa Lloren Cuaresma
Lone District of Nueva Vizcaya

EXPLANATORY NOTE

The travel and Tourism Competitiveness Report released by the World Economic
Forum at the Global Tourism Forum 2011 held in Andorra revealed that the Philippines ranked
94" out of the 139 countries in terms of most attractive environments for developing the travel
and tourism industry. The dismal performance can be attributed to our low ratings in the travel
and tourism regulatory framework, as well as in business environment and infrastructure.

The Board of Airline Representatives (BAR) which represents the biggest foreign
airlines operating in the country considers both the three (3%) Common Carriers Tax (CCT)
and the two and a half (2.5%) Gross Billings Tax (GBP) on all cargo and passenger revenue
originating from the Philippines in an uninterrupted flight, regardless the place of sale or issue
of ticket as discriminatory taxes that the foreign airlines and give undue advantage to local
companies. The Philippines is the only country that charge such taxes awhile other Asian
countries offer incentives to foreign carriers.

Due to the imposition of these taxes, Air France and the KLM Royal Dutch Airlines
decided to stop flights between Amsterdam and Manila. This is the last direct link of the
Philippines to Europe. Carriers with extensive global networks had either left the Philippines
or shifted capacity to the benefit of neighboring countries’ tourism and trade.

The International Air Transport Association (IATA) commissioned Oxford Economics
to undertake a study of 54 countries to quantify the benefits of aviation.

From visiting families and friends to shipping high value products, 27 million
passengers and 596,000 tons of freight travel to, from and within the Philippines. The value


All of these benefits however would be offset by excessive tax burden on foreign
carriers operating in the Philippines. The impact of taxation on aviation would most adversely
impact leisure travelers given their high sensitivity to changes in price. IATA said the removal
of the CCT and the Gross Philippine Billings (GBP) would bring down the cost of international
travel to the country by 2.5 percent, and increase the number of international arrivals by 1.9
percent. Removing the said taxes would also redound to tourism proceeds of $78 million, as
well as to $1 billion boost to exports.

In view of the foregoing, immediate passage of this bill is earnestly sought.

tee | ei CUARESMA


Republic of the Philippines
House of Representatives

EIGHTEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 3042

Introduced by Rep. Luisa Lloren Cuaresma
Lone District of Nueva Vizcaya

AN ACT RATIONALIZING THE TAX EXEMPTIONS ON INTERNATIONAL AIR
CARRIERS OPERATING IN THE PHILIPPINES, AMENDING FOR THE PURPOSE
CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE OF 1997,

AS AMENDED

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

SECTION 1. — Section 28 (A) (3) (a) of the National Internal Revenue Code of 1997,
as amended, is hereby further amended to read as follows:

“Sec. 28. Rates of Income Tax on Foreign Corporations
“(A) Tax on Resident Foreign Corporations.

(1) xxx
(2) xxx

(3) International Carrier — An international carrier doing business in the Philippines
shall pay a tax of two and one-half percent (2.5%) on its Gross Philippines Billings as
defined hereunder:

(a) International Air Carrier —‘ Gross Philippine Billings’ refer to the amount of gross
revenue derived from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and in interrupted flight,
irrespective of the place of sale or issue and the place of payment of the ticket or
passage document: Provided, that tickets revalidated, exchanged and/or indorsed
to another international airline from part of the Gross Philippine Billings if the
passenger boards a plane in a port or point in the Philippines on another airline,
only the aliquot portion of the cost of the ticket corresponding to the leg flown

ilippines to the point of transshipment shall from part of Gross
Philippines Billings.



“PROVIDED, THAT INTERNATIONAL AIR CARRIERS DOING
BUSINESS IN THE PHILIPPINES SHALL NOT BE LIABLE TO PAY
THE GROSS PHILIPPINES BILLINGS HEREIN PROVIDED
PURSUANT TO THE PRINCIPLE OF RECIPROCITY: PROVIDED
FURTHER, THAT THE GRANT OF RECIPROCAL EXEMPTIONS TO
INTERNATIONAL AIR CARRIERS SHALL ENTER INTO FORCE
THIRTY (30) DAYS FROM THE EXCHANGE OF DIPLOMATIC
NOTES BETWEEN THE PHILIPPINES AND THE FOREIGN
JURISDICTION CONCERENED: PROVIDED, FINALLY, THAT SAID
DIPLOMATIC NOTES SHALL CONSTITUTE THE AGREEMENT
BETWEEN THE TWO (2) COUNTRIES.

“(b) xxx.”

“Disbursement from the Fund shall be made solely for the protection,
maintenance, administration, and management of the System, and duly approved
projects endorsed by the PAMBs, in the amounts authorized by the DENT IN
ACCORDANCE WITH EXISTING ACCOUNTING, BUDGETING AND
AUDITING RULES AND REGULATIONS: PROVIDED, FURTHER, THAT
THE FUND SHALL NOT BE USED TO COVER PERSONAL SERVICES
EXPENDITURE.”

SECTION 2. Separability Clause — If any part of this Act is declared invalid or
unconstitutional, such declaration shall not affect the other parts of this Act.

SECTION 3. Repealing Clause — All laws, acts, presidential decrees, executive orders,
administrative orders, rules and regulations inconsistent herewith or contrary to the provisions
of this Act are deemed amended, modified or repealed accordingly.

SECTION 4. Effectivity Clause — This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in two (2) newspaper or general circulation.

Approved,