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The Department of Finance main office in Manila. (Photo: Team Vega via Wikimedia Commons)

DOF to scrap airlines’ tax incentives

Tax incentives granted to the country’s two major airline companies will be revoked once the Department of Finance’s (DOF) proposed second tax reform package is passed into law.

Based on the Comprehensive Tax Reform Program (CTRP) package two submitted to the House of Representatives, the government will start collecting “all applicable taxes” under the national internal revenue code on the operations of Philippines Airlines (PAL) and Cebu Pacific Air once the bill is enacted into law.

Despite the removal of their tax incentives, the DOF wants to keep PAL’s franchise fee at two percent of gross revenues derived from all income sources whether transport or non-transport income.

Cebu Pacific’s franchise fee is proposed by the DOF to remain at five percent.

Revenues from incoming international passengers, mail, freight, however, will remain not subject to Philippine taxes.

Under the proposed CTRP-2, PAL’s congressional franchise will be overhauled, removing several provisions pertaining to the airliner’s exemptions from other taxes, duties, royalties, registration, license and other fees collected by local governments.

The proposal imposes taxes, duties, charges among others on PAL’s importation of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, oil, among others.

PAL will also be required to pay taxes on lease rentals, interest, fees and other charges payable to both local and foreign lessors. The carrier’s leasing operations are subject to taxes under the DOF’s package two proposal.

On Cebu Pacific’s congressional franchise, the catch on clause ensuring that the Gokongwei-led airline company enjoys a level playing field in the industry in terms of tax treatment will be removed.

The taxes under the franchise granted to Aboitiz Air Transport Corp. are also to be removed by the DOF under its second tax reform proposal.

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