Airlines that operate in the Philippines are worried that the second package of the Tax Reform for Acceleration and Inclusion (TRAIN) law, will effectively remove the tax incentives that the government has previously provided and about the negative impact on the industry.
Dexter M. Comendador, the President and CEO of Philippines AirAsia told reporters that, “I hope they don’t go through with their TRAIN 2 plans, which will remove our tax incentives. It will make the domestic airlines, not only us, but all the others including Philippine Airlines and Cebu Pacific — less competitive with our peers in the international market,”
Mr. Comendador said the passage of TRAIN 2 means everything will be taxed, from spare parts to fuel. He noted that fuel, maintenance and spare parts are the biggest expenses of carriers, and taxing them will impose huge costs on the airline industry.
“You’re killing the industry that was liberalized by President Ramos. Why do it now, when the market for aviation is growing,” he added.
Philippines AirAsia is a subsidiary business unit of Malaysia’s AirAsia Group, founded by CEO “Tony” Fernandes. Philippines AirAsia started its operations in the Philippines in 2012. In a recent press interview, Fernandes said that Philippines AirAsia is doing very well right now.
AirAsia Berhad is a Malaysian low-cost airline headquartered near Kuala Lumpur, Malaysia. It is the largest airline in Malaysia by fleet size and destinations. The company operates through subsidiaries in India, Indonesia, Malaysia, the Philippines and Thailand and is considered Asia’s leading low-cost airlines.
AirAsia (Malaysia) said in its annual corporate report that it is “bullish” on the Philippines. The airline currently dominates the market in Malaysia and Thailand, and has plans for an initial public offering (IPO) in late 2018 or early 2019.
The bill for TRAIN 2 was filed with the House of Representatives in March, and discussions on the bill are planned for July. The bill intends to cut corporate income tax rates from 30% to 25%, while also rationalizing investor incentives. Although the decrease in tax rates sounds good, in the case of the airlines, they will see their tax rates rise, as previous benefits are cancelled by the new bill.
The Air Carriers Association of the Philippines (ACAP) is working on a position paper to submit to the government by June and plans to provide economic data to show how TRAIN 2 will hurt the industry if implemented as planned in January 2019.
In an interview on Philippines television channel ABS-CBN, Jaime Bautista, the President of Philippine Airlines said that the impact of TRAIN 2 on the airline industry will inevitably result in airlines raising their fares for both passengers and freight and that this could have a negative impact on the economy. Bautista said that the government should review TRAIN 2 and its impact on the airline industry and should be open to options, including leaving in place all current airline benefits or providing a longer phase in schedule for new taxes that will impact airline revenues and profits.