Open Sky Policy of the Philippines

The European Chamber of Commerce of the Philippines (ECCP) welcomes the Open Skies policy of the Aquino administration.

Tourism, being recognized in Arangkada as one of the sunrise industries, has the chance to become one of the big contributors to foreign exchange earnings and employment.

However, the industry’s success will not be delivered on a silver platter.

The Open Skies policy which will hopefully be confirmed in an Executive Order soon, will not succeed if the international aviation industry will be burdened with excessive and unfair taxes.

It has to be understood that the international aviation industry is the most crucial partner of Philippine tourism, recognized as a primary engine of socio-economic growth and development.

It is undisputable that the success of Philippine tourism will greatly depend on the country’s international connectivity which is, in turn, a function of the state of international aviation industry in the Philippines.

Unfortunately, over the years, the number of international airlines doing business in the Philippines has dwindled even while the international aviation business in our neighboring countries (the same countries with which the Philippines needs to compete for international tourists) saw significant growth.

The list includes Alitalia, Air France, British Airways, Egypt Air, Lufthansa, Swissair, United and Vietnam Airlines. Some foreign carriers have significantly reduced capacity.

Part of the reason why the number of airlines operating in the Philippines has not increased and has in fact declined over the years can be attributed to the unfriendly and grossly onerous tax regime for international airlines in the Philippines.

The current tax regime in place consists of common carriers tax (CCT) of three percent of gross receipts and Gross Philippine Billings (GPB) tax of 2.50 percent of GPB or an aggregate taxation on their gross revenue of 5.50 percent.

These taxes and their pertinent regulations are not consistent with international standards and practices, thus making the Philippines the most expensive investment destination for airlines in the Association of Southeast Asian Nation (ASEAN) region.

And Philippine international carriers are not subject to these types of taxes in the routes where they compete with foreign airlines.

This discrimination contravenes the principles of the International Civil Aviation Organization to which the Philippines is a signatory.

The government earns P3.20 billion (approximately $ 70 million) for charging the international airlines to the Philippines for the CCT and GPB taxes but the continued erosion of foreign and perhaps Philippine carrier flights that support Philippine trade and economic growth will benefit the other Asian economies in terms of business and employment opportunities.

The trade-off between loss in tax revenue and competitiveness of the air transport sector should be viewed as an investment of the government on the economy and its various sectors.

Studies have also shown that more taxes will be derived, albeit indirectly, from the elimination of GPB and CCT on foreign carriers in the Philippines.

The International Air Transport Association (IATA), an international trade body representing 230 airlines conducted an economic analysis of the effect of eliminating these taxes in the Philippines.

Based on IATA’s study, this policy option will cost the Philippine government $ 70 million but it can generate the following benefits during the first year that the CCT and GPB are eliminated:

–Lower total cost of international passenger travel in the Philippine market by 2.50 percent;

–Increase in the number of international arrivals and departures in the Philippines by 230,000 passengers, representing growth of 1.90 percent.

–Increase in the number of international visitors by 70,000 and potential gains of between $ 38 to 78 million (or average of $ 45 million) for the wider Philippine economy from increased tourism activity.

The increase in tourism arrivals will in turn create an additional 70,000 jobs, $ 214 million in employee compensation and $ 5.40 million in tourism tax revenues.

–Lower cargo transport costs could give a boost to export earnings in the order of $ 1 billion.

ECCP supports the endeavors of internationals carriers to get rid of the onerous taxes and to advance Philippine tourism and trade development began by the Tourism Act of 2009, the ECCP said.

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