SMC airport tax perks may gain backing

By Arjay L. Balinbin, Senior Reporter

THE proposed measure that seeks to grant San Miguel Aerocity, Inc. various tax incentives for the P740-billion Bulacan airport project — including income tax exemption for the entire 50-year concession period — is likely to get strong support from senators.

“I’m supportive. It will give the builder honest-to-goodness incentives to push through and fast-track that very important project that can redound to the benefit of our economy,” Senate President Vicente C. Sotto III told BusinessWorld in a phone message last week.

Michael Henry Ll. Yusingco, a non-resident research fellow at the Ateneo Policy Center of the Ateneo School of Government, said the proposed measure is sure to be thoroughly scrutinized in the Senate.

“The subject-matter is too controversial to go under the legislative radar, so to speak. It will certainly have some strong support in the upper chamber. But I’m also confident that opposition to the bill will be made loud and clear,” he said in an e-mailed reply to questions.

Senator Mary Grace Natividad S. Poe-Llamanzares said the Senate committee on public services “will consider the measure in the interest of public service based on its own merits.”

“As it is, I have always supported critical, national infrastructure, particularly on transportation. I’ve been urging the National Economic and Development Authority and the Department of Transportation to move along with the airport projects, and we welcome this latest development,” she said in a mobile phone message.

Senator Juan Edgardo M. Angara, who chairs the chamber’s finance committee, said he is also open to supporting the proposed legislation.

“I know this is one of the most urgent needs of our country for some time now and the financial requirements are enormous, so incentivizing the building of an airport, while it may result in foregone taxes and revenue in the short term, will surely redound to the country’s long-term benefit. It will create jobs and it will decongest Metro Manila to a certain degree,” he said.

Senators Ana Theresia N. Hontiveros-Baraquel and Sherwin T. Gatchalian said they were going to study the bill first.

On Sept. 1, the lower chamber approved on second reading House Bill 7507 that seeks to grant San Miguel Aerocity, a subsidiary of San Miguel Corp. (SMC), a 50-year franchise to construct, develop, establish, operate, and maintain an airport in Bulacan.

The franchise will also allow the SMC subsidiary to construct, operate, and maintain an adjacent airport city.

San Miguel Aerocity will be exempt from all direct and indirect taxes and fees during the 10-year construction period of the airport and the airport city.

At the end of the construction period, the SMC unit will remain exempt from income taxes and taxes on real estate, buildings and property for the remainder of its franchise, according to the bill. The tax exemptions will expire “as soon as it is determined by a competent authority that the grantee has fully recovered its investment cost” on the project.

The Department of Finance (DoF) is opposed to the proposed tax incentives for the project, which is an unsolicited proposal. The department does not want this to set a precedent, as under the build-operate-transfer (BOT) law, “the government must not provide subsidies or guarantees to proponents,” Finance Assistant Secretary Maria Teresa S. Habitan said.

“I share the DoF’s apprehension to the idea of granting SMC tax exemptions that are not available to other firms in similar circumstances. I think the DoF is correct to point out that the government may be setting a precedent with this measure that may be prejudicial to the nation’s fiscal viability down the line. And given that this bill only grants these tax exemptions to a specific entity, I am also wary that Congress may be legislating here in violation of the equal protection clause of the 1987 Constitution. The promoters of this bill must provide an explanation that this is not the case,” Mr. Yusingco explained.

‘DIFFICULT TO IGNORE’
The Bulacan airport will be a direct investment equivalent to 4% of the country’s gross domestic product, according to House Ways and Means Committee Chairman Albay Rep. Jose Maria Clemente S. Salceda.

“The indirect benefits, in the form of returns to government in excess of the 12% profit margin, massive job creation in Central Luzon and the surrounding regions, increased investment in the area, and the decongestion of our air transport system are also extraordinary, from our viewpoint,” he said in a recent statement.

The potential of the project to generate jobs for Filipinos will be very difficult for our lawmakers to ignore, Mr. Yusingco said.

“I think the numbers’ game will tilt towards those in favor of the bill,” he added.

The San Miguel airport is an example of a project in which opposition and administration blocs can meet at one point despite their political differences, University of Santo Tomas political science professor Marlon M. Villarin said in a phone message.

Mr. Villarin said the issues involved will also not gain much attention from the public. “They are too preoccupied with political noises, and the topic is literally a technocrat thing,” he added.

Mr. Yusingco said: “Tax exemption for corporations is not really a topic that will cause a stir in anyone’s mind these days. Still, it is an urgent national concern that they should be informed about.”