NRC Tax Research Journal Wonume sexi International Carriers Taxation in the Philippines* 1. INTRODU 1ON Connectivity plays a vital role in the economic development of a country, The Philippines being an archipelagic nation, relies heavily on the transport sector for the movement of people and goods. It is through air and sea connectivity that we are able to link our country to the global economic market, However, recent developments in the international air industry in the country have reduced our connectivity to other countries. The termination of the direct service of Air France ~ KLM to Manila ended the last available direct flight from Europe to the Philippines. This was part of KLM’s efforts to counter the impact of the current tax regime on international air carriers in the country. At present, international air and shipping carriers in the country are subject to the Gross Philippine Billings ‘Tax (GPBT) and the Common Carriers Tax (CCT). There are now proposals seeking for the abolition of the said taxes on international carriers. In fact, the International Air Transport Association (ATA) and the Board of Airline Representative (BAR) have communicated strong opposition against these taxes claiming that the same are discriminatory and inconsistent with the rulings of the World Trade Organization (WTO) of which the Philippines is a member, as well as the resolutions of the Intemational Civil Aviation Organization (ICAO) to which the country is also a signatory. In view thereof, this paper aims to provide basic facts on the international carriers industry in the country, specifically the taxes and fees imposed on them to serve as inputs to fiscal policymakers, I, BACKGROUND INFORMATION At present, there are seven (7) domestic airlines and one (1) Philippine affiliated airline, Of the seven (7) domestic airlines, four (4) have both domestic and foreign destination flight services, two (2) have domestic but no foreign destination flight services and one (1) operating exclusive foreign destination flight services.NIRC Tax Research Journal Volume XXIV2 | Table 1. LOCAL AIR PASSENGER CARRIERS IN THE PH PPINES, 2012 Airlines Domestic Forcign | Destinations | Destinations ‘AirAsia Philippin Yes Yes | ‘Air Philippines Corp. Yes Yes | Cebu Pacifie Air Inc. Yes Yes Southeast Asian Airline, Ine. (SEAIR) Yes Yes Philippine Airlines, Ine. (PAL) Yes Yes Asian Spirit Yes No Zest Airways, Inc Yes No Spirit of Manila Airlines Corp No Yes “Philippine affiliated airline. Source: Civil Acronauties Board (CAB) and websites ofthe different airlines. AirAsia Philippines is the Philippine affiliate of AirAsia, a budget airline based in Malaysia. It has both domestic and foreign destination flight services. Its main hub of operation is at the Clark International Airport in Angeles City, Pampanga. The airline is a joint venture between Filipino investors and AirAsia International Ltd., a subsidiary of AirAsia Inc. The airline received its Air Operator Certificate from the Civil Aviation ‘Authority of the Philippines (CAAP) on February 7, 2012 giving the airline permission to fly on Philippine airspace The following are the countries to which these local airlines are offering direct flight services, viz.5 1. Australia Bahrain Canada Hong Kong, BED India Indonesia Japan Malaysia People’s Republic of China (PRC) een aw 10. Qatar 11. Singapore 12, South Korea 13. Taiwan 14. Thailand 15. United Arab Emirates (UAE) 16. United States of America (USA) 17. Vietnam Source: Websites of the local airlines (as of April 18, 2012). Titermational Carriers Taxation the PhilipinesNTRC Tax Research Journal Volume XXIV] At present, PAL is the only local airline operating in all 17 foreign countries and the only one with direct flight services to Australia, Canada, the Middle East and the USA while all others have direct flight services to Asian countries only. It is noted, however, that there are no local airlines operating direct flight services to any Furopean countries, (On the other hand, as of 2011 there are 43 international air carriers’ with landing rights in the Philippines, viz. 1. AHK Air Hong Kong Limited 23. Japan Airlines Int'l Co., Ltd 2. Air Asia Berhad 24, Jeju Air Co., Ltd. 3. Air Busan 25, Jetstar Airways Pty., Ltd. 4. Air China 26, Jetstar Asia Airways Pte., Ltd. 5. Air Macau 27. Jin Air 6. Air Niugini 28, KLM Royal Dutch Airlines 7. All Nippon Airways Co., Ltd. 29. Korean Air 8. Asiana Airlines 30, Kuwait Airways Corp. 9. Cathay Pacific Airways, Ltd 31. Malaysia Airlines 10. China Airlines 32. Mandarin Airlines Co. Ltd. 11. China Souther Airlines 33. PT Garuda of Indonesia 12. Continental Micronesia, Ine. / 34, Qantas Airways, Ltd. Air Micronesia, Ine. 35. Qatar Airways 13. Continental Airlines, Inc, 36. Royal Brunei Airlines Sdn Bhd 14, Delta Airlines, Inc. 37. Saudi Arabian Airlines 15, Emirates Air 38, Silkair (Singapore) Pte., Ltd. 16, Btihad Airways 39, Singapore Airlines Ltd 17. Eva Airways Corp. 40. Thai Airways Int’l Public Co., Ltd. 18, Federal Express Corp, 41. Tiger Airways Singapore Private 19. Gulf Air Limited 20. Hawaiian Airlines, Ine. 42. UPS Airlines 21, Hong Kong Dragon Airlines 43. Vietnam Airlines 22. Hong Kong Express Airways Ltd ‘Source: CAB. a "nvernational air ers are foreign airline corporations doing business in the Philippines having. ‘been granted landing rights in any Philippine port to perform intermational air transportation services/activities ‘or flight operations anywhere in the world. [See. 2(a), Revenue Regulation (RR) No. 15-2002] G Tnternational Carriers Taxation in the Philippines