Group urges Senate to scrap tax exemption for SMC
LOCAL think tank Action Economic Reforms (AER) urged the Senate to scrap the tax exemption provision under the bill granting San Miguel Corp. (SMC) a franchise for the construction of the “New Manila International Airport” in Bulacan.
The AER made the call as it pointed out that “taxpayers should be spared from the burden” if a private sector decides to build a new airport.
“San Miguel has the freedom to construct its airport if it wants to compete with Naia (Ninoy Aquino International Airport) and Clark [International Airport], but like any business or entrepreneurial activity, it must fully bear the risk,” the local think tank said in a statement on Thursday.
“The executive branch of government has also made it clear that public funds should not bear the risk or costs. Clearly from his statement, Finance Secretary Carlos G. Dominguez will not agree to government and taxpayers being burdened by the costs, including tax expenditure, of this unsolicited private undertaking. The costs and risks have to be shouldered by [Ramon S.] Ang’s companies.”
Earlier, Finance Assistant Secretary Teresa S. habitan rejected the proposal to grant tax incentives for the proposed Bulacan airport.
Despite this, the house of Representatives early this month approved the bill on third and final reading.
house Committee on Ways and Means Chairman Joey Sarte Salceda has also said his committee is looking at foregone revenues of around P38 billion in national revenues from the period of construction, and around P1.5 billion to P2 billion annually once the airport begins to operate.
In the same statement, the AER also argued that fiscal incentives can only be justified whenever a market failure exists and that there is “no compelling reason” for the government to subsidize another airport since congestion will be prevented by the supply of air travel services that NAIA and Clark will provide.
It explained market failure is absent because current and and future demand for air travel can be addressed by enhancing and expanding existing airports.
“In the same vein, a new airport that is in close proximity to CRK [Clark International Airport] does not substantially provide additional public benefits. The service it provides, from a public good perspective, is redundant. hence, government and the taxpayer should not shoulder the costs of this airport’s construction,” it added.
It also warned that legislating another tax incentive under the franchise bill undermines the goal of the proposed Corporate Recovery and Tax Incentives for Enterprises Bill (Create), which seeks to “rationalize the system of providing fiscal incentives and improve the country’s competitiveness.”
“It sets a dangerous precedent where individual corporations will just approach Congress for tax perks, instead of going through the systematic fiscal incentives criteria that Create offers. It opens the floodgates for more corporate lobbying for fiscal incentives. We thus propose that the San Miguel airport project, if it wants to pursue tax incentives despite our objection, be subject to the process and standards of Create, which will soon be passed,” it said.
Under the franchise bill passed by the house, during the 10-year construction period, the grantee shall be exempt from any and all direct and indirect taxes and fees of any kind, nature or description, which emanates exclusively from the construction, development, establishment and operation of the airport and airport city, including income taxes, value-added taxes, percentage taxes, excise taxes, documentary stamp taxes, customs duties and tariffs, taxes on real estate, buildings and personal property, business taxes, franchise taxes, and supervision fees, levied, established or collected, or may be levied, established or collected, by any city, municipal, provincial or national authority.
After the 10-year construction period and during the remaining term of the franchise, the grantee shall be exempt from income taxes and taxes on real estate, buildings and personal property, levied, established or collected, or may be levied, established or collected, by any city, municipal, provincial or national authority.
however, such exemption shall expire as soon as it is determined by competent authority that the grantee has fully recovered its investment cost and expenses on the airport and on the Airport City, including financing and borrowing expenses. Then, the grantee shall be subjected to all taxes under the National Internal Revenue Code and Customs Modernization and Tariff Act.