Aircraft refueling: Phl most expensive in Asia

MANILA, Philippines - Airlines operating in the Philippines are up in arms over the imposition of value added tax (VAT) and excise tax on jet fuel suppliers, making the Philippines the most expensive place in Asia to fuel an aircraft.

Steven Crowdey, vice chairman of the Board of Airline Representatives (BAR) Philippines, said the imposition of the VAT and excise tax on fuel suppliers have resulted in higher costs for international carriers that some of them have resorted to impose higher fares to recoup additional costs.

“This unfortunate and avoidable set of circumstances will see a combination of higher charges for consumers and reduced flying to the Philippines with attendant reductions in tourism and trade,” Crowdey warned.

With the new taxes, jet fuel in the Philippines is now $0.81 per US gallon (USG) higher than Singapore and $0.59 per USG higher than in Narita in Tokyo. Previously, fuel in the Philippines was $0.12 per USG higher than Singapore  and $0.10 lower than Narita.

Delta Airlines, where Crowdey is currently the general manager, has filed an application with the Civil Aeronautics Board (CAB) to raise the fuel surcharge imposed on passengers for flights leaving Manila by $45.

If approved, Delta Airlines would charge passengers going to Japan a fuel surcharge of $135 instead of $90 while passengers going to the US would be charged $215 instead of $170.

“The additional $45 is necessary to cover the cost of new taxes being levied on jet fuel via fuel suppliers and borne by international airlines,” he added.

Due to various specific legal restrictions, BAR said fuel suppliers are not permitted to recover VAT or excise taxes directly from foreign carriers and are forced to increase their per gallon fuel rate to recover their own tax costs, resulting in higher fuel costs for foreign airlines.

BAR pointed out that the new taxes are a clear and blatant attempt to avoid the Philippines’ own laws and obligations under international agreements intended to provide tax relief to international carriers.

“Despite being a signatory to bilateral international agreements providing reciprocal tax relief to international carriers, the Philippines now taxes the fuel suppliers, who have no option but to pass a cost equal to the taxes onto carriers,” BAR said.

BAR added that fuel companies have been unable to recover VAT since 2010 and a Supreme Court ruling in 2012 prevents the Bureau of Internal Revenue (BIR) from providing excise tax relief to the fuel companies for fuel used for international flying.

The BIR is just waiting for a decision from the Commission on Audit (COA) to pursue the refund of the $0.37 per USG  VAT slapped on foreign carriers while a law is required to relieve the foreign airlines of the $0.32 per USG excise tax.

Crowdey warned that other countries could be forced to impose similar taxes on airlines from the Philippines since the global aviation industry has a profit margin of only two percent on a good year.