Abolition of the common carriers tax will be supported by the Finance department but only if Congress passes a measure to offset the revenue losses.

Finance Secretary Cesar V. Purisima "interposes no objection" to the repeal of 3% tax on the gross receipts of international carriers, the department said on Friday, as long as "countervailing revenue sources/measures shall be identified" to recoup an estimated P1.6 billion in losses.

Following the principle of fiscal responsibility, any revenue loss measure enacted in Congress should be compensated by a corresponding revenue gain, the Finance department said in a statement.

"As fiscal managers, it is our duty to protect the country’s revenue base. Fiscal responsibility should be recognized in all discussions. Expanding our revenue base will enable government to support key social and economic services that will further improve our country’s competitiveness," Mr. Purisima was quoted as saying.

Foreign airlines and business chambers have been urging the government to do away with the CCT, complaining that the allegedly heavy tax burden is forcing them to cut back on operations in the Philippines. Just last month, Air France-KLM, the sole European carrier operating in the Philippines, announced it would phase out direct flights between Manila and Europe starting next year.

The Finance department earlier opposed the repeal of CCT, claiming it would erode state revenues and create unfair competition for local airlines that are subject to the 12% value-added tax.

Mr. Purisima, however, is now saying that the abolition of the CCT will benefit the country by boosting business and tourism.

"Our position is consistent with the recent World Bank report which states that CCT should be repealed to be consistent with international practice and not hinder growth of tourism sectors," he said in the statement.

"We acknowledge the role of tourism in generating investments, employment and reducing poverty in the country," Mr. Purisima added.

European Chamber of Commerce of the Philippines (ECCP) president Hubert d’Aboville welcomed the Finance department’s new stance, saying it would bode well for the economy.

"The math will show that each tourist that comes to the Philippines spends so much more locally than what the taxes would be. Further tourism will boost job creation in the province," he said in a text message.

The decision, however, should have come three months ago to prevent Air France-KLM’s pullout, Mr. d’Aboville added.

Source: Business World; News; 12 December 2011