Local carriers left out

Executive Orders 28 and 29 are off the press, so to speak, signed and released for implementation by Malacañang despite the vociferous objections of some groups. We recently talked to a Senior Program Officer (Ms. Ember Cruz) of the Fair Trade Alliance, one of the more vocal groups against EOs 28 and 29. For us laymen, EO 28 was basically designed to create two panels: the negotiating panel and the consultation panel to handle all air service issues. EO 29, on the other hand, basically tracks the directions that these two panels should take.

The biggest question now bugging the local groups involved in the air travel industry is why our Philippine carriers have been pulled out of the negotiating panel. All this time, they have always been represented in air service discussions, a crucial and intrinsic member of the panel until EO 28 came along. Previously, in 2001, EO 219 was issued which effectively identified the negotiating and consultation panel, then just one body. EO 219 included local air carriers. However, with EO 28, our local carriers have been relegated to just being observers, with no inputs to share in the deliberations. Ms. Cruz adds that in foreign countries, the local carriers always sit in the negotiating table, even for countries where the government owns the major carriers.

The Fair Trade Alliance is also taking the new EOs to task, with Ms. Cruz saying “We want the negotiation panel and the consultation panel to do more than think of new air service agreements to enter into. We want them to evaluate other air service agreements before offering more frequencies and more air rights to other foreign carriers. We have 62 air service agreements with 62 countries that we can review and evaluate before we go out and seek more air service agreements. “

The Alliance wants the proper authorities to assess “the real situation”, adding that we do have a lot of problems to look into before seeking more air service agreements. For one, our infrastructure situation begs immediate solutions. Many of our airports in provinces that we tout as major tourist destinations have airports in sorry states. We can start with the physical infrastructure, and perhaps upgrade the systems and the personnel. The airport taxes should be allotted for this purpose and nothing else. A recurring problem in many administrations is we have the right taxation system in place but the taxes are applied for other purposes, and accountability is only resorted to if it serves a political end. Road taxes are for the country’s roads, but the hundreds of millions have yet to be accounted for. Same with airport taxes.

EO 29 also provides for pocket open skies in order to encourage tourism. The Fair Trade Alliance also says this is highly debatable. Ms. Cruz says “It involves a lot of income when you trade air rights…. we ended up having the raw end of the deal.”  

It would not be a bad idea to give these groups a chance to give their own inputs into the issue. After all, they too are stakeholders in the industry that will be directly impacted by these two recent Executive Orders. How about it?

Incentive rationalization scheme

This bill has been tabled for about 15 years now in Congress, and finally it seems it will finally see light. It is an incentive system for manufacturers based in officially identified economic zone areas and the free port areas. Actually, this incentive scheme bill is not new—do you know that we have 129 laws granting incentives to different sectors. The confusion these 129 laws generate, especially among foreign investors is enough reason to consolidate these laws into just one comprehensive law which is what the Incentive Rationalization Bill is all about.

I also learned something else from the Board of Investment’s Executive Director Ms. Lucita Reyes. Currently, the Philippines (along with Thailand) have the highest corporate tax rate among the ASEAN nations at 30 percent. Singapore has only a 17 percent rate which makes it an ideal choice for foreign investors. Indonesia, Malaysia and Vietnam are at 25 percent.

The new bill will not cover all manufacturers. For export-oriented companies located in PEZA, an income tax holiday of five percent on gross income earned will be granted, equivalent to a corporate tax rate of 18 percent. If the corporation is located in any area up to the 6th class municipality, tax rate will be further reduced with a longer duration. The business activities of these companies should be listed in the Investments Priority Plan of the government to qualify. Currently, if you are export-oriented company located in an authorized PEZA location, you can get an income tax holiday incentive for four to six years and then pay the five percent on gross income earned (GIE) and that is perpetual. However, if your business is located in the free port areas, you cannot avail of any income tax holiday because the BCDA laws do not provide for this. That’s a huge disparity which the new Incentive Rationalization Bill seeks to address. Per the BOI Executive Director, “you get first the income tax holiday or the five percent GIE, or directly to the reduced income tax rate. There is a menu of options, but whatever you decide on, the selection will be final. You will no longer be entitled to a perpetual income tax incentive.” For export-oriented companies, the income tax-based incentive will be good for 25 years, but if you are located within the economic zone and the free port, you may avail of the incentives for an indefinite period of time because “they were covered and registered under the current law of registration.”

Hearings on the bill were already concluded in the committee level and, when signed by a majority of the members, will already be deliberated on the floor. On the Senate side, the bill, sponsored by Senators Ralph Recto and Ed Angara will have to wait until it is passed by Congress before they start calling for a committee hearing. I think that is going to take a very long time, but at least it’s moving now.

Mabuhay!!! Be proud to be a Filipino.

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