THE Department of Finance (DOF) will review current revenue regulations on the common carriers tax imposed on international air and sea cargo vessels doing business in the Philippines in a bid to improve the country’s competitiveness in the global shipping and air cargo sectors.
During a recent meeting with Danish officials, Finance Secretary Carlos G. Dominguez III said the DOF is studying the legislation governing the common carriers tax and how it is being currently implemented in the country.
“We are seriously reviewing this and again the goal is to make it fair to everyone and to make it a level playing field for all participating in the business. We are going to review the BIR [Bureau of Internal Revenue] issuances,” Dominguez said.
He gave the assurance of the review after Denmark Minister of Industry, Business and Financial Affairs Brian Mikkelsen raised the issue during the meeting.
“This is the one topic that gets us worried. We are very interested to know more about this. Looking at the shipping area, this is a very global business, therefore it is advisable to have a level playing field,” Mikkelsen said.
Also with Mikkelsen at the meeting were Danish Ambassador Jan Top Christensen and Tine Nielsen Hertz, the head of Division of the Ministry of Industry, Business and Financial Affairs.
Under Republic Act (RA) 10378, international carriers are currently exempted from paying the 3 percent common carriers tax imposed on passengers but not on cargo.
“Online international air carriers are exempt from VAT [value-added tax]. They are liable to the three percent percentage tax on their gross receipts from outbound fares and freight, pursuant to Section 118 of the Code,” said BIR Revenue Memorandum Circular 46-2008.
The DOF said the international carriers wishing to be granted Philippine income tax exemption—on the basis of reciprocity—may file for a confirmatory ruling for such exemption with the BIR’s International Tax Affairs Division.
Reciprocity under RA 10378 refers to “an applicable tax treaty or international agreement to which the Philippines is a signatory” or when the home country of an international carrier grants income tax exemption to Philippine carriers.
“I think the concern is the enactment of RA 10378, which declares that gross receipts by international air and shipping carriers are subject to common tax and not VAT. We are studying whether a proposal to modify is in order,” Dominguez told financial reporters in a text message.
Mikkelsen was recently in Manila to head a business delegation from Denmark, as several Danish firms have expressed interest in partnering with Philippine companies to be able to invest here.
“We are very impressed with the achievements of the Philippines,” Mikkelsen added.
The finance chief told the Danish delegation that the government is now applying the finishing touches to its web-based National Single Window, which aims to facilitate trade, heighten transparency in customs procedures and improve revenue collection, as part of the reforms that the Duterte administration is undertaking to attract more investments in the country.
He also urged Danish companies to take part in the Duterte administration’s “Build, Build, Build” infrastructure program as well as in the ongoing efforts to tap a third player in the country’s telecommunications sector.