IS it goodbye, or as the French say, au revoir, to the Old World?
Well, not really. But it’s some sort of a farewell.
Unless the Philippine government changes its position, by April next year there will be no more direct flights from Manila to Europe, and vice versa.
The bone of contention is the government’s imposition on international air carriers of a 2.5-percent gross Philippines billing tax and the 3-percent common-carriers tax on cargo and passenger revenues originating from the country.
Air France-KLM, the remaining international carrier with direct flights from Manila to Amsterdam, has announced plans to stop direct flights to the Philippines because of the controversial taxes. The airline said it will immediately slash its flights to six times a week from daily, but starting April 2012, it will stop direct flights to Manila and fly via Hong Kong, instead.
What that means is that travelers will have to fly first to Hong Kong or Bangkok to catch a flight to any of the European capitals.
And that could mean higher airfares, especially for outbound OFWs, for whom every dollar saved means a lot to their families back home.
Foreign tourists paying the tax on the return leg of their journeys could also be discouraged from choosing the Philippines as a destination.
The taxes also result in higher freight costs and slow down the growth of the country’s air-travel industry.
The airline has found an ally in the Joint Foreign Chambers, which is asking the government to abolish the taxes that they say make the country uncompetitive with its Asian peers. The JFC wants the tax regime on foreign air and shipping companies changed from the current percentage tax to value-added tax (VAT) zero-rated.
The International Air Transport Association (Iata) is also firmly opposed to the taxes. It says the government can earn as much as $78 million (P3.4 billion) a year in tourism revenues with the removal of the taxes. Tourist arrivals can grow by as much as 230,000 a year, which would help the government reach its goal of getting 6 million tourists by 2016.
Lower cargo costs can also increase export revenues by as much as $1 billion, the industry group added.
The European Chamber of Commerce of the Philippines, for its part, says the CCT and GBP payments cost carriers a total of P3 billion a year, and that the taxes are discriminatory since they were imposed only on foreign airlines. Like the Iata, it believes the government can make more money than it will lose by removing CCTs and GBPs.
But the Department of Finance is standing pat on the taxes. It claims abolition would inflict huge fiscal costs on the government to the tune of about P2.5 billion in revenues. The breakdown: P1.6 billion for the common-carriers tax, and P900 million for the gross Philippine billing tax, based on 2004-09 collections.
The DOF asserts that changing the tax type on foreign carriers from the current percentage tax to VAT zero-rated is not allowed by existing law and requires legislative action, not just an executive edict.
There are two bills pending in Congress, HB 3928 and HB 4444, seeking the exemption of international air carriers from the payment of the taxes. But the finance department insists these would create inequity issues since they will only exempt foreign air carriers and not foreign shipping from the taxes, and that they would unduly penalize domestic carriers now paying both the corporate-income tax and the VAT.
According to news reports, the Department of Transportation and Communications has expressed alarm over the planned withdrawal by the airline and wants to find a solution that could convince the airline to change its mind. But the finance department apparently does not want to budge from its position, as it is focused on raising more revenues. This is an open-and-shut case of the left hand not knowing what the right hand is doing, with dire consequences for overseas Filipino workers and the tourism industry.
At this point, clearly a win-win solution is needed that would satisfy both the government, on the one hand, and airlines and travelers, on the other. If not, it’s going to be really goodbye Europe for many Filipinos, unless they’re willing to shell out more money from their meager pockets.
