OPENING STATEMENT OF SEN. RALPH G. RECTO
COMMITTEE ON WAYS AND MEANS PUBLIC HEARING
FEB. 2, 2012

SBN 3065 – Tax Exemptions of International Air Carriers

First on our agenda is Senate Bill 3065, which seeks to abolish the 3% Common Carriers Tax (CCT) and the 2 ½ % Gross Philippine Billings Tax (GPBT) imposed on International Air Carriers provided that under the principle of reciprocity, tax treaties and international agreements entered into by the Philippines provide for such exemption.

In other words, in the interest of fairness, international air carriers shall not be taxed in the Philippines where Philippine air carriers are likewise not tax in that particular country where the international air carrier is based, as provided in international treaties.

Studies conducted by stakeholders assert that the present taxes imposed by the Philippines 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 allegedly 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, it is reported that 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 stopped their Philippine operations. Those who stay are said to have 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 the Philippines rather than endure costlier and inconvenient connecting flights to and from the Philippines.

The abolition of taxes on international carriers will certainly boost tourism, which should be among the priority programs of the government as it has a distinct advantage in this area considering the magnificent tourist destinations in the country both natural and man-made and the friendly nature of Filipinos. Indeed, it is more fun in the Philippines. But government must facilitate the mobility of tourists who want to enjoy the Philippines.

This morning, our resource persons are expected to expound on the implications of the present taxes imposed on international carriers to tax treaties and international agreements entered into by the Philippines. The Department of Finance will also present the impact of the bill on the government revenues.

We will also listen to presentations on the effect of the proposed elimination of the CCT and the GPBT to the international tourist arrivals. The Committee also expects to receive information on the advantages of increased tourist arrivals to job creation, employee compensation and tourism tax revenues. Likewise, we want to know the impact on the level of export earnings as a result of lower cargo transport costs.

SBN 2739, SBN 2879 – Increasing the Ceiling on Bonus and other Benefits Excluded from Income Taxation

We will now proceed to the next bills on the Agenda, which are Senate Bills 2739 and 2879.

These bills seek to increase the P30,000 ceiling on the 13th month pay and other benefits that are excluded from the gross income of officials and employees in both the government and private sectors in the computation of income taxation, amending for the purpose the NIRC Code of 1997.

SBN 2739 introduced by Senator Miriam Defensor-Santiago provides an increase of from 30 thousand pesos to 40 thousand while SBN 2879 authored by this representation provides for an increase to 60 thousand pesos.
The Chair also notes that House Bill 4177 on the same subject matter was introduced in the House of Representatives by Congressmen Neri Colmenares and Teddy Casiño.

The general objective of the bills is to provide taxpayers reprieve from the increasing cost of living at a time when the ceiling provided in the Tax Code no longer reflects the prevailing circumstances.

In the determination of the increase in ceiling, we will consider the Consumer Price Index (CPI) and inflation, and the series of salary adjustments as a result of the implementation of the Salary Standardization Law.

Over the years, Inflation has eroded the purchasing power of our taxpayers and, thus, the ceiling on bonus that is exempt from tax is no longer responsive to actual realities.

Moreover, the P30,000 ceiling was prescribed when the lowest monthly basic salary for employees with Salary Grade 1 was P2,800 and that of the President of the Philippines with Salary Grade 33 was P25,000. Today, after a series of salary adjustments, Salary Grade 1 now receives P8,287 while salary Grade 33 is paid P107,470.
This will have corollary effect on the amount of bonus received as it is based on monthly salary.

The Chair notes that while NIRC of 1997 grants authority to the Department of Finance upon the recommendation of the Bureau of Internal Revenue to increase the ceiling, same authority was never exercised since the effectivity of the law despite inflation and salary adjustments.

And yet, the Secretary of Finance through the recommendations of the BIR Commissioner has already issued BIR Revenue Regulations No 18-2011 effective January 1, 2012 adjusting to the present values using the CPI, threshold of transactions subject to VAT pursuant to the provisions of NIRC of 1997. For instance, the threshold for the sale of residential lot subject to VAT is now P1,919,500 from the previous P1,500,000.

We understand that the Department of Finance will call attention to the revenue lost estimated. However, it may also be said that freeing some amounts from the tax net will redound to disposable income that can be used to buy VATable goods and services. Hence, the government while foregoing some revenues may recoup the same with other forms of income.

This committee hearing will listen to resource persons who will expound on the need for the adjustment of the ceiling, the extent of the adjustments, and the subsequent revenue impact.