Republic of the Philippines o
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

HOUSE BILLNO, 8928

Introduced by Honorable Hermilando 1, Mandanas
Second District, Batangas

EXPLANATORY NOTE

International air and sea transport connectivity plays an important role in a
country's economic growth. Material economic benefits from increased tourism and
export trade activities are, without a doubt, among the consequences of a vibrant air and
sea transport industry. For one, it allows for the much needed flow of the country’s
overseas workers, who are among its economic assets, to their destinations abroad.
Another boon it gives is the accessibility to business travelers and investors of the
Philippine market. Particular of these are those in service export business such as
business process outsourcing (BPO) customers whose primary requirement is the easy
entry and exit from the host country.

Notwithstanding these perceived gains, however, the Philippines has not done
much to cultivate a conducive climate for these sectors. At present the taxes the country
levies on the international air and sea transport sectors are the 2 1/2% Gross Philippine
Billings Tax (GPBT) and the 3% Common Carrier's Tax (CCT), which are both levied
on all revenues, passenger, cargo and excess baggage leaving the Philippines,
irrespective of the point of sale or payment of the ticket, passage or freight documents,
whichever is the case. However, the Philippines is the only country that charges these
taxes on international civil aviation and sea travel; and from the viewpoint of
international carriers, such impositions violate the non-discrimination principle of the
World Trade Organization (WTO) which states that a member state such as the
Philippines should not discriminate between its own and foreign products and services
Also, the GPBT and CCT are perceived to be in contravention of the International Civil
Aviation Organization (ICAO) resolution, to which the country is a signatory, on the


waiver of taxation on international air transportation. And this has so far caused at least
four countries to take reciprocal actions against Philippine carriers. To make matters
worse, the lamentable economic result of such a policy is that it makes other countries
like Malaysia and Thailand more attractive to foreign carriers. This, in turn, provides
meager economic opportunities for the country’s tourism and export trade sectors as
compared to its neighbors in the region.

Given these considerations, it is high time that this inequity be addressed. Doing
so will convincingly and unequivocally demonstrate the country’s willingness to
rightfully honor its commitments and obligations under treaties and_ international
agreements it has entered into. As data analysis shows, having a more fair treatment with
regard to GPBT and CCT on international air carriers alone would mean a potential gain
for the revenue-generating efforts of the government in the amount of US$38-78 million
from rejuvenated tourism, and an additional US$1 billion on account of boosted export
earnings resulting from lower cargo transport costs. And, expectedly, more revenues
would flow with international shipping carriers being taken into account.

Accordingly, passage of the bill is earnestly sought

HOX. HERMILANDO I. MANDANAS


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

FIFTEENTH CONGRESS
First Regular Session

aq
HOUSE BILL NO. _83 28

Introduced by the Honorable Hermilando |. Mandanas
Second District, Batangas

AN ACT
RECOGNIZING THE TAX EXEMPTIONS UNDER TAX TREATIES AND
INTERNATIONAL AGREEMENTS RELATED TO INTERNATIONAL
CARRIERS TO WHICH THE PHILIPPINES IS A SIGNATORY, AND FOR
OTHER PURPOSES

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

SEC. 1. Section 28 (A) (3) 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) 200.

“(2) xxx

*(3) International Carrier. - An international carrier doing business in the
Philippines shall pay a tax of two and one-half percent (21/2%) on_ its
‘Gross Philippine Billings’ as defined hereunder:

(a) International Air Carrier. - ‘Gross Philippine Billings’ refers
to the amount of gross revenue derived from carriage of persons,
excess baggage, cargo and mail originating from the Philippines in
a continuous and uninterrupted 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 form part of the Gross
Philippine Billings if the passenger boards a plane in a port or point
in the Philippines: Provided, further, That for a flight which
originates from the Philippines, but transshipment of passenger
takes place at any port outside the Philippines on another airline,
only the aliquot portion of the cost of the ticket corresponding to the
leg flown from the Philippines to the point of transshipment shall
form part of Gross Philippine Billings.

(b) International Shipping. - ‘Gross Philippine Billings’ means
gross revenue whether for passenger, cargo or mail from the
Philippines up to final destination, regardless of the place of sale or
payments of the passage or freight documents.”

(C) RECOGNITION OF TAX EXEMPTIONS UNDER TAX
TREATIES AND INTERNATIONAL AGREEMENTS — AN
INTERNATIONAL CARRIER SHALL NOT PAY THE TAX HEREIN
PROVIDED WHERE TAX TREATIES AND INTERNATIONAL
AGREEMENTS ENTERED INTO BY THE PHILIPPINES PROVIDE
FOR EXEMPTION FROM SUCH.

SEC. 2. Section 118 of the National Internal Revenue Code of 1997, as
amended, is hereby further amended to read as follows:

“Sec. 118. Percentage Tax on International Carriers. —

{A) __ International air carriers doing business in the Philippines shall pay
a tax of three percent (3%) of their quarterly gross receipts.

(B) __ International shipping carriers doing business in the Philippines
shall pay a tax equivalent to three percent (3%) of their quarterly gross
receipts.

(C) RECOGNITION OF TAX EXEMPTIONS UNDER TAX TREATIES
AND INTERNATIONAL AGREEMENTS — INTERNATIONAL CARRIERS.
SHALL NOT PAY THE TAX HEREIN PROVIDED WHERE TAX
TREATIES AND INTERNATIONAL AGREEMENTS ENTERED INTO BY
THE PHILIPPINES PROVIDE FOR EXEMPTION FROM SUCH.


SEC. 3. Implementing Rules and Regulations. - The Secretary of Finance shall,
upon the recommendation of the Commissioner of Internal Revenue, promulgate
not later than 30 days upon the effectivity of this Act the necessary Rules and
Regulations for its effective implementation.

SEC. 4. Repealing Clause. - All laws, acts, presidential decrees, executive
orders, issuances, presidential proclamations, rules and regulations or parts
thereof which are contrary to and inconsistent with any provisions of this Act are
hereby repealed, amended or modified accordingly.

SEC. 5. Separability Clause. - If any provision of this Act is subsequently
declared invalid or unconstitutional, other provisions hereof which are not
affected thereby shall remain in full force and effect

SEC. 6. Effectivity Clause. - This Act shall take effect fifteen (15) days after its
complete publication either in the Official Gazette, or in at least two (2)
newspapers of general circulation.

Approved,