FIFTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
Second Regular Session 
SENATE 
S. No. 3065 
) 
) 
) 
Introduced by Senator Ralph O. Recto 
EXPLANATORY NOTE 
'11 
I~OV 21 
{',Ii :00 
Over the years, the Philippine government has been unsuccessful in its campaign 
to promote our tourism industry that is susceptible to external economic factors. 
It 
alternately depends on and affects other industries particularly the labor export and 
business-process outsourcing (BPO) industries of which Philippines-based BPOs account 
for about 15% of global market. One vital strategy to invigorate the tourism industry is to 
increase aviation and shipping activities that will boost foreign exchange earnings and job 
opportunities. 
Conversely, our tax policies make our country an unappealing market for 
international carriers who are critical players in trade and tourism. Under the National 
Internal Revenue Code, international carriers must pay a Common Carriers Tax (CCT) of 
3% of gross receipts and 2.5% on its Oross Philippine Billings (OPB) on all cargo and 
passenger revenues originating from the Philippines in an uninterrupted flight irrespective 
of the place of sale or issue and the place of payment of the ticket or passage document. 
The Philippines is the sole country imposing these taxes. The International Air 
Transportation Association (IA T A) study asserted that these taxes are discriminatory and 
their pertinent regulations are inconsistent with the principles of the World Trade 
Organization of which the Philippines is a member and the resolution of the International 
Civil Aviation Organization to which the country is a signatory. The aforementioned tax 
policies serve as investment barriers by making our country the most expensive 
investment destination for airlines in the Association of Southeast Asian Nation 
(ASEAN) region. 
Due to sizeable decline in their commercial yields, the number of foreign airlines 
operating in the Philippines continues to dwindle. Various international carriers, 
especially those from Europe, that operate longer flights and have higher ticket prices, 
have had to pay more taxes. Consequently, many have halted their Philippine operations. 
Those who stay offer significantly reduced capacity and opt to reallocate capacity to 
Malaysia, Thailand, Singapore, and even to latecomers Vietnam and Cambodia. Tourism, 
trade and investment prospects suffer, since travelers especially those to and from Europe 
or the US choose to avoid rather than endure costlier and inconvenient connecting flights 
to and from the Philippines. 
The lATA study shows that on the first year of the elimination ofCCT and OPB, 
the number of international arrivals and departures will increase by 230,000 passengers, 
or grow by 1.90 percent. The number of international visitors is also expected to rise by 
70,000 with potential gain of about $45 million for the national economy from increased 
tourism activity. Subsequently, the increase in tourism arrivals will create an additional 
70,000 jobs, $214 million in employee compensation and $5.40 million in tourism tax 
revenues. Likewise, lower cargo transport costs are expected to boost export earnings by 
$1 billion. 


We certainly cannot afford to overlook these trade, tourism and investment 
prospects that the Philippines can realize only when we respect and recognize our 
commitments and obligations under treaties and international agreements. 
The approval of this bill seeks (0 end the exodus of international common carriers 
from the Philippines and in turn promote the progressive development of existing air and 
shipping carriers, strengthen the country's competitive edge as a prime tourist hub in Asia 
and further diversify trade and the national economy. 
With the foregoing considered, the approval of this bill is errnestly sought. 
, 
! 
i ( 
RAl:pIi G. RECTO 
/ 


FIFTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
Second Regular Session 
SENATE 
) 
) 
) 
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Introduced by Senator Ralph G, Recto 
AN ACT 
RECOGNIZING 
THE 
TAX 
EXEMPTIONS 
UNDER 
TAX 
TREATIES 
AND 
INTERNATIONAL AGREEMENTS RELATED TO INTERNATIONAL CARRIERS 
THE PHILIPPINES HAS ENTERED INTO, AND FOR OTHER PURPOSES 
Be it enacted by the Senate and the House of Representatives of the Philippines in Congress 
assembled: 
1 
SECTION 1. Section 28 (A) (3) of the National Internal Revenue Code of 1997, as 
2 
amended, is hereby amended to read as follows: 
3 
"SEC, 28, Rates of Income Tax on Foreign Corporations, -
4 
"(A) Tax on Resident Foreign Corporations, -
5 
"(1) x x x 
6 
"(2) x x x 
7 
"(3) International Carrier, - An international carrier doing business in the 
8 
Philippines shall pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine 
9 
Billings' as defined hereunder: 
10 
"(a) International Air Carrier, - 'Gross Philippine Billings' refers to the 
11 
amount of gross revenue derived from carriage of persons, excess baggage, cargo and 
12 
mail originating from the Philippines in a continuous and uninterrupted flight, 
13 
irrespective of the place of sale or issue and the place of payment of the ticket or 
14 
passage document: Provided, That tickets revalidated, exchanged and/or indorsed to 
15 
another international airline form part of the Gross Philippine Billings if the 
16 
passenger boards a plane in a port or point in the Philippines: Provided, further, That 
17 
for a flight which originates from the Philippines, but transshipment of passenger 
18 
takes place at any port outside the Philippines on another airline, only the aliquot 
1 


1 
pOllion of the cost of the ticket corresponding to the leg flown from the Philippines to 
2 
the point of transshipment shall form part of Gross Philippine Billings. 
3 
"(b) International Shipping. - 'Gross Philippine Billings' means gross revenue 
4 
whether for passenger, cargo or mail originating from the Philippines up to final 
5 
destination, regardless of the place of sale or payments of the passage or freight 
6 
documents. 
7 
"PROVIDED, THAT INTERNATIONAL CARRIERS DOING BUSINESS IN 
8 
THE PHILIPPINES SHALL NOT BE LIABLE TO PAY THE TAX HEREIN 
9 
STATED WHERE, PURSUANT TO THE LAW ON RECIPROCITY, TAX 
10 
TREATIES AND INTERNATIONAL AGREEMENTS ENTERED INTO BY THE 
11 
PHILIPPINES PROVIDE FOR SUCH EXEMPTION. 
12 
"(4) x x x." 
13 
SEC. 2. Section 118 of the National Internal Revenue Code of 1997, as amended, is 
14 
hereby amended to read as follows: 
15 
"SEC. 118. Percentage Tax on International Carriers. -
16 
"(A) International air carriers doing business in the Philippines shall pay a tax of three 
17 
percent (3%) of their quarterly gross receipts. 
18 
"(B) International shipping carriers doing business in the Philippines shall pay a tax 
19 
equivalent to three percent (3%) of their quallerly gross receipts. 
20 
"PROVIDED, THAT INTERNATIONAL CARRIERS DOING BUSINESS IN 
21 
THE PHILIPPINES SHALL NOT BE LIABLE TO PAY THE TAX HEREIN STATED 
22 
WHERE, PURSUANT TO THE PRINCIPLE OF RECIPROCITY, TAX TREATIES 
23 
AND INTERNATIONAL AGREEMENTS ENTERED INTO BY THE PHILIPPINES 
24 
PROVIDE FOR SUCH EXEMPTION." 
25 
SEC. 3. implementing Rules and Regulations. - The Secretary of Finance shall, upon 
26 
the recommendation of the Commissioner of Internal Revenue, promulgate the necessary rules 
27 
and regulations for the effective implementation of this Act. 
28 
SEC. 
4. Separability Clause. - If any provision of this Act is declared unconstitutional 
29 
or invalid, other pallS or provisions hereof not affected thereby shall continue to be in full force 
30 
and effect. 
2 


1 
SEC. 
S. Repealing Clause. - All laws, decrees, executive orders, rules and regulations 
2 
or parts thereof which are contrary to or inconsistent with this Act are hereby repealed, amended 
3 
or modified accordingly. 
4 
SEC. 
6. Effectivity. - This Act shall take effect fifteen (15) days after its publication in 
5 
the Official Gazette or in any two newspapers of general circulation, whichever comes earlier. 
Approved, 
3