DTI to recommend tax exemption for aircraft parts

DTI to recommend tax exemption for aircraft parts

MANILA, Philippines — The Department of Trade and Industry (DTI) would recommend tax exemption for imported spare parts for the aircraft maintenance repair and overhaul (MRO) industry under the proposed Comprehensive Income Tax and Incentive Rationalization Act (CITIRA).

Trade Secretary Ramon Lopez told reporters the agency would include in its recommendations to fine-tune the CITIRA bill the tax exemption for spare parts used by MRO companies.

This, after the agency recently met with MRO service provider Lufthansa Technik Philippines (LTP) which has aired its concern on the CITIRA bill.

LTP president Elmar Lutter said earlier this month the MRO industry is not properly represented in the CITIRA bill.

Among the concerns raised by LTP on the bill is that it exempts imports of raw materials from duties and value-added tax (VAT) but not imports of spare parts which are used by MRO providers.

“We think this was an unintentional omission in the current draft of the bill. It can be cured relatively easily mainly by extending the provisions for raw materials to spare parts,” Lutter said.

Lopez said the agency recognizes spare parts are like raw materials for MRO firms, and so, it supports LTP’s position to extend the exemption from customs duties and VAT to imports of spare parts.

“To them (MRO), it’s like a raw material. I will support that. That is their business model and they are being export-oriented. So that has to be no tax from the start,” he said.

CITIRA bill which has been approved on third and final reading at the House of Representatives, seeks to bring down the corporate income tax rate to 20 percent by 2029 from 30 percent, and modernize fiscal incentives.

Among the changes in incentives is removal of the five percent tax on gross income earned (GIE) paid by firms registered with the Philippine Economic Zone Authority.

Apart from exemption from customs duties and VAT of imported spare parts under the CITIRA bill, LTP wants to retain the preferential tax on GIE but at a higher rate of seven percent.

LTP also wants extend to 10 years fiscal incentives granted to existing and new projects with a right to re-apply currently limited to five years; exempt domestic airlines with international operations like Philippine Airlines and Cebu Pacific from the requirement to remit foreign currency to qualify for VAT-zero rating, as well as for government to extend the sunset provision to 10 years which is currently at two to five years.