The Philippine Star

Lufthansa Tech­nik airs con­cern over CITIRA

- By LOUELLA DESIDE­RIO Business · Finance · Taxes · Lufthansa Airlines · Philippines · Philippines Department of Trade and Industry · Congress of the United States · PAL Holdings · Cebu Pacific · ASEAN · Asia · Malaysia · Vietnam · Thailand · China · Germany · Cebu City · Davao · Pampanga · Luffhansa Technik · Pasay · Pasay City · Aklan

As the ap­proval of the Com­pre­hen­sive In­come Tax and In­cen­tives Ra­tio­nal­iza­tion Act (CITIRA) in its cur­rent form threat­ens the planned ex­pan­sion and cur­rent op­er­a­tions of Lufthansa Tech­nik Philip­pines (LTP), the air­craft main­te­nance re­pair and over­haul (MRO) provider is push­ing for some changes in the bill such as rais­ing the tax rate on gross in­come earned (GIE) and ex­emp­tion of air­craft parts im­ports from cus­tom du­ties and value-added tax (VAT).

LTP pres­i­dent El­mar Lut­ter said the CITIRA bill cur­rently poses a threat to the firm’s planned ex­pan­sion and ex­ist­ing op­er­a­tions in the coun­try.

“If it is passed in the cur­rent form, we can­not sur­vive at all,” he said.

LTP has ear­lier in­formed the Depart­ment of Trade and In­dus­try of its in­ten­tion to un­der­take a $40 mil­lion ex­pan­sion pro­ject at its ex­ist­ing fa­cil­ity in Vil­lamor Air­base in Pasay City as it an­tic­i­pates growth in the global MRO mar­ket.

This ex­pan­sion would cover 9,000-square me­ters and cre­ate 300 jobs when com­pleted.

CITIRA, which has been passed on third and fi­nal read­ing at the House of Rep­re­sen­ta­tives and among the ad­min­is­tra­tion’s pri­or­ity leg­isla­tive mea­sures, seeks to bring down the cor­po­rate in­come tax (CIT) rate grad­u­ally to 20 per­cent from 30 per­cent, and ra­tio­nal­ize in­cen­tives.

Part of the pro­posed changes to the in­cen­tives sys­tem un­der the bill is to re­move the five per­cent tax rate on GIE paid by firms reg­is­tered with the Philip­pine Eco­nomic Zone Au­thor­ity (PEZA) in lieu of all na­tional and lo­cal taxes af­ter they have uti­lized their in­come tax hol­i­days.

Lut­ter said the MRO in­dus­try is not prop­erly rep­re­sented in the CITIRA bill.

Lut­ter said LTP is com­ing up with a po­si­tion pa­per to be sub­mit­ted this week.

In its draft po­si­tion pa­per, LTP said there is a need to re­tain the pref­er­en­tial tax on GIE al­beit at a higher rate.

“We sup­port the in­crease in pref­er­en­tial rate from five per­cent to seven per­cent to fund the re­duc­tion of reg­u­lar CIT,” LTP said.

In ad­di­tion, LTP said it is nec­es­sary to ex­tend to 10 years the fis­cal in­cen­tives granted to ex­ist­ing and new projects with a right to re-ap­ply which is cur­rently limited to five years.

LTP said it is crit­i­cal for the in­dus­try that im­ports MROre­lated air­craft parts, tools, ma­te­ri­als and sup­plies, as well as those used for ex­pan­sion and con­struc­tion fa­cil­i­ties be ex­empt from cus­toms du­ties and VAT.

At present, the ex­emp­tion only ap­plies to cap­i­tal equip­ment and raw ma­te­ri­als.

In ad­di­tion, LTP wants do­mes­ti­cally reg­is­tered, in­ter­na­tion­ally op­er­at­ing air­lines like Philip­pine Air­lines and Cebu Pa­cific to be ex­empt from the re­quire­ment of in­wardly re­mit­ting for­eign cur­rency to qual­ify for VAT-zero rat­ing, as well as for gov­ern­ment to ex­tend the sun­set pro­vi­sion to 10 years which is cur­rently two years for ac­tiv­i­ties en­joy­ing in­cen­tives for more than 10 years.

“If you look at taxes, the higher our taxes get, the less we are able to in­vest in the coun­try and we are al­ready not in the top spot among ASEAN coun­tries when it comes to new in­vest­ment de­ci­sions,” Lut­ter said.

He said Lufthansa Tech­nik is cur­rently mak­ing plans to set up a pro­duc­tion hub for the South­east Asian re­gion and while the Philip­pines is among the can­di­date sites, it is cur­rently in the mid­dle of the list, be­hind neigh­bors Malaysia, Viet­nam and Thai­land.

“It would be a very sub­stan­tial pro­duc­tion plant for the whole of Asia out­side of China,” he said.

LTP is a joint ven­ture be­tween Ger­many’s Lufthansa Tech­nik AG and Philip­pine’s avi­a­tion ser­vices provider MacroAsia Corp.

Aside from Pasay, LTP also has op­er­a­tions in Cebu, Davao, Pam­panga, and Ak­lan.

To date, LTP em­ploys 3,200 work­ers.

Since Septem­ber 2000, the com­pany has in­vested $270 mil­lion in in­fra­struc­ture, train­ing and qual­i­fi­ca­tion of per­son­nel.

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