MANILA, Philippines — As the approval of the Comprehensive Income Tax and Incentives Rationalization Act (CITIRA) in its current form threatens the planned expansion and current operations of Lufthansa Technik Philippines (LTP), the aircraft maintenance repair and overhaul (MRO) provider is pushing for some changes in the bill such as raising the tax rate on gross income earned (GIE) and exemption of aircraft parts imports from custom duties and value-added tax (VAT).
LTP president Elmar Lutter said the CITIRA bill currently poses a threat to the firm’s planned expansion and existing operations in the country.
“If it is passed in the current form, we cannot survive at all,” he said.
LTP has earlier informed the Department of Trade and Industry of its intention to undertake a $40 million expansion project at its existing facility in Villamor Airbase in Pasay City as it anticipates growth in the global MRO market.
This expansion would cover 9,000-square meters and create 300 jobs when completed.
CITIRA, which has been passed on third and final reading at the House of Representatives and among the administration’s priority legislative measures, seeks to bring down the corporate income tax (CIT) rate gradually to 20 percent from 30 percent, and rationalize incentives.
Part of the proposed changes to the incentives system under the bill is to remove the five percent tax rate on GIE paid by firms registered with the Philippine Economic Zone Authority (PEZA) in lieu of all national and local taxes after they have utilized their income tax holidays.
Lutter said the MRO industry is not properly represented in the CITIRA bill.
Lutter said LTP is coming up with a position paper to be submitted this week.
In its draft position paper, LTP said there is a need to retain the preferential tax on GIE albeit at a higher rate.
“We support the increase in preferential rate from five percent to seven percent to fund the reduction of regular CIT,” LTP said.
In addition, LTP said it is necessary to extend to 10 years the fiscal incentives granted to existing and new projects with a right to re-apply which is currently limited to five years.
LTP said it is critical for the industry that imports MRO-related aircraft parts, tools, materials and supplies, as well as those used for expansion and construction facilities be exempt from customs duties and VAT.
At present, the exemption only applies to capital equipment and raw materials.
In addition, LTP wants domestically registered, internationally operating airlines like Philippine Airlines and Cebu Pacific to be exempt from the requirement of inwardly remitting foreign currency to qualify for VAT-zero rating, as well as for government to extend the sunset provision to 10 years which is currently two years for activities enjoying incentives for more than 10 years.
“If you look at taxes, the higher our taxes get, the less we are able to invest in the country and we are already not in the top spot among ASEAN countries when it comes to new investment decisions,” Lutter said.
He said Lufthansa Technik is currently making plans to set up a production hub for the Southeast Asian region and while the Philippines is among the candidate sites, it is currently in the middle of the list, behind neighbors Malaysia, Vietnam and Thailand.
“It would be a very substantial production plant for the whole of Asia outside of China,” he said.
LTP is a joint venture between Germany’s Lufthansa Technik AG and Philippine’s aviation services provider MacroAsia Corp.
Aside from Pasay, LTP also has operations in Cebu, Davao, Pampanga, and Aklan.
To date, LTP employs 3,200 workers.
Since September 2000, the company has invested $270 million in infrastructure, training and qualification of personnel.