Stressing that taxpayers should be spared from the burden, the group Action for Economic Reforms has asked the Senate not to grant tax exemptive relief to the San Miguel Corp. (SMC) for its airport project.
This developed as a bill was filed in Congress allowing SMC to construct the “New Manila International Airport” in Bulakan, Bulacan contains a tax exemption provision.
“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.
“The executive branch of government has also made it clear that public funds should not bear the risk or costs," AER added.
"Clearly from his statement, Finance Secretary Carlos G. Dominguez will not agree to the 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,” the group said.
The House approved the airport measure on third and final reading early this month despite the Finance Secretary’s objection to the provision granting SMC the tax exemption for the Bulacan project.
Once the Bulacan airport becomes operational, the government may lose around P1.5 billion to P2 billion in taxes annually, House Committee on Ways and Means Chairman Joey Sarte Salceda warned.
Salceda added that his committee is studying national revenue losses of around P38 billion when the infrastructure project starts construction.
The AER added that fiscal incentives can only be justified if there is a market failure, stresing there is “no compelling reason” for the government to subsidize another airport, as congestion will be prevented by the supply of air travel services that NAIA and Clark will provide.
The AER emphasized there is no market failure 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, the government and the taxpayer should not shoulder the costs of this airport’s construction,” said AER.
The local think tank 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), 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," the group said.
"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,” AER 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."
These include "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.