Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

AAAA
HOUSE BILL NO. *

Introduced by Hon. Jerry P. Trefias

Explanatory Note

International air transport connectivity is the most critical infrastructure linking
the Philippines to the global export markets of tourism and international business. It
enables movement of our network of 8.2 million Overseas Filipinos Workers (OFW),
including workers in ship crewing, healthcare, IT, and hospitality industries. The
airlines are providing seamless travel connections for customers and suppliers of
service exporters (¢.g. health tourism, retirement, logistics, creative industries,
business process outsourcing (BPO), high yield backroom operations and regional
headquarters) that require direct access and easy entry and exit to and from the
Philippines. These are industries being developed and promoted in order to gencrate
uch needed investments, foreign exchange and for Fi os, both here and abroad.
Tt is clear that the tourism industry in the Philippines is highly dependent on the
country’s access provided by international airlines operating to and from the
Philippines.

‘The exit of international carriers from the Philippines, where foreign carriers
are taxed, has been in stark contrast to the growth in services experienced by
neighboring Asian countries that either incent or do not tax foreign carriers. The
heretofore restricted markets of China and Japan are liberalizing access and have
invested in infrastructure to attract foreign carriers. Carriers with extensive global
networks have already left the Philippines, shifting capacity to benefit neighboring
countries’ tourism and trade. The country’s links with global markets in tourism and
in trade are poor relative to neighboring countries and will suffer substantial further
deterioration.

One of the main reasons why the number of airlines operating in the
Philippines has decreased is the grossly onerous tax regime for foreign airlines, The


current tax regime consists of the Common Carriers Tax ("CCT"), which is 3 percent
of the gross turnover, and the Gross Philippme Billings ("GPB") a tax which is 2%
percent of the gross tumnover.

It has to be emphasized that the 5.5 percent is based on GROSS tumover and
NOT on GROSS INCOME or TAXABLE INCOME. Industry margins have rarely
reached these percentages.

Both CCT and GBP are levied on all revenues, passenger, cargo and excess
baggage for air transportation leaving the Philippines, irrespective of the point of
sale of the air transportation. These taxes are also in possible violation of the non-
discrimination principle of the World Trade Organization (WTO), which stipulates
that a member state should not discriminate foreign products, services and nationals.

International tourists contribute at least US$2.3 Billion in export receipts (2009
data). Potential tourists avoid the Philippines due to the lack of non-stop connections
from/to the USA and Europe. Every missing tourist translates into one lost revenues
and jobs. The lack of non-stop services also negatively impacts airfreight, penalizing
existing and potential exporters of electronics, fashion items, seafood and vegetables.
‘These taxes increase the air freight cost and business development costs for exporters,
particularly the small and medium. -sived enterprises from the countryside seeking
access in new markets like Europe and the Americas.

Without a healthy airline industry, Philippine tourism will never flourish. AID
the incentives granted under the Tourism Act of 2009 to increase the country’s
capacity to generate investments, employment and reduce poverty will simply be
rendered worthiess. The same is true for the other government plans to develop export
industries and services.

Elimination of these taxes would result in greater receipts for the BIR from
sustained economic activity.

This bill seeks to advance Philippine tourism, trade, employment and economic
integration with the rest of the world eliminating the negative impact of CCT and
GPB on Philippines’ international connectivity and competitiveness as an
intemational investment destination Approval of this bill is theréfore highly
encouraged.

J "RENAS


Republic of the Philippines
HOUSE OF REPRESENTATIVES.
Quezon City

FIFTEENTH CONGRESS
First Regular Session

GA

HOUSE BILLNO. __® 44

Introduced by Hon. Jerry P. Treiias

AN ACT
RATIONALIZING THE TAXES IMPOSED ON INTERNATIONAL AIR
CARRIERS OPERATING IN THE PHILIPPINES, AMENDING FOR THE
PURPOSE SECTIONS 28, AND 118 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) of the National Internal Revenue Code, as
amended, is hereby further amended to read as follows:

(3) International Carrier.| - An international carrier doing business in the
Philippines shalt pay a tax of two and one-half percent (2 1/2%) on its
"Gross Philippine Billings” as defined hereunder:}

{a) International Air Carrier. - ANY INCOME DERIVED BY
AN INTERNATIONAL AIR CARRIER FROM DOING
BUSINESS IN THE PHILIPPINES SHALL BE EXEMPT FROM
INCOME TAX. ["Gross Philippine Billings” refers to the amount of
goss 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.

INTERNATIONAL AIR CARRIER DOING BUSINESS IN
THE PHILIPPINES SHALL INCLUDE BOTH A FOREIGN
AIRLINE CORPORATION THAT HAS BEEN GRANTED
LANDING RIGHTS IN ANY PHILIPPINE PORT TO
PERFORM INTERNATIONAL AIR TRANSPORTATION
SERVICES OR FLIGHT OPERATIONS, AND A FOREIGN
AIRLINE CORPORATION WITHOUT LANDING RIGHTS
BUT MAINTAINING A _ BUSINESS ESTABLISHMENT,
AGENT OR REPRESENTATIVE OFFICE IN THE
PHILIPPINES FOR THE SALE OF TICKET OR PASSAGE
DOCUMENTS TO EVIDENCE THE INTERNATIONAL AIR
TRANSPORTATION SERVICES OR FLIGHT OPERATIONS
OF THE INTERNATIONAL AIR CARRIER.

INTERNATIONAL AIR TRANSPORT SERVICES
SHALL MEAN THE CARRIAGE OF PASSENGERS AND/OR
CARGO ON AN AIRCRAFT OPERATED OR ENGAGED BY
THE INTERNATIONAL AIR CARRIER FOR SUCH
CARRIAGE BETWEEN ANY PORT OR POINT WITHIN THE
TERRITORIAL JURISDICTION OF THE PHILIPPINES AND
ANY PORT OR POINT OUTSIDE SUCH JURISDICTION
WHILE FLIGHT OPERATIONS REFER TO ANY OTHER
ACTIVITY OF THE INTERNATIONAL AIR CARRIER
ARISING FROM, RELATING TO OR CONNECTED WITH
SUCH CARRIAGE.

(b) International Shipping.- AN INTERNATIONAL SHIPPING
CARRIER DOING BUSINESS IN THE PHILIPPINES SHALL
PAY A TAX OF TWO AND ONE-HALF PERCENT (2 AND


‘%&%) ON ITS ‘GROSS PHILIPPINE BILLINGS’ AS DEFINED
HEREIN: “
Gross Philippine Billings” means gross revenue whether for
Passenger, cargo or mail originating from the Philippines up to final
destination, regardless of the place of sale or payments of the passage
or freight documents.
Section 2. Section 118 of the National Internal Revenue Code, as amended,

is hereby further amended to read as follows:

SEC. 118. Percentage Tax on International Carriers. -

((A) Intemational 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.

Section 3. Implementing Rules and Regulations. — The Secretary of
Finance shall, in consultation with the Commissioner of Internal Revenue,
promulgate the necessary rules and regulations to effectively implement the
provisions of this Act.

Section 4. Separability Clause. — If any part, section or provision of this
Act is held invalid or unconstitotional, other provisions not affected thereby shall

remain in full force and effect.


Section 5. Repealing Clause. — All laws, decrees, orders, rules and
regulations or other issuances inconsistent with the provisions of this act are
hereby repealed, amended or modified accordingly.

Section 6. Effectivity. — This Act shall take effect fifteen (1S) days after
publication in two (2) national newspapers of general circulation.

Approved,