House panel OK’s tax perks for SMC airport

By Arjay L. Balinbin, Senior Reporter

THE House ways and means committee on Wednesday approved a proposal to exempt a San Miguel Corp. (SMC) subsidiary from all taxes while it is constructing the P740-billion international airport in Bulacan province.

The tax exemption is included in the substitute version of House Bill No. 7241 which seeks to grant San Miguel Aerocity, Inc. a 50-year franchise to build, develop, establish, operate, and maintain an airport in Bulakan town.

“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 the airport city,” according to a copy of the substitute bill.

The SMC unit will be exempted from income, value-added, percentage, excise, and documentary stamp taxes, customs duties and tariffs, taxes on real estate, buildings and personal property, business and franchise, and supervision fees.

At the end of the construction period, San Miguel Aerocity will remain exempt from income tax 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 airport project.

In a phone message to BusinessWorld, Finance Assistant Secretary Maria Teresa S. Habitan said the department is “not okay” with the proposed grant of tax incentives.

“The Bulacan Airport was an unsolicited bid. Under the BoT (build-operate--transfer) law, the government must not provide subsidies or guarantees to proponents. We take that to mean including tax perks,” Ms. Habitan said.

House ways and means committee Chairman Albay Rep. Jose Maria Clemente S. Salceda said the panel had tempered the tax incentives to be granted to SMC’s unit under the substitute bill.

“On its own, the project was already going to be beneficial, as a P740-billion infrastructure investment that will come entirely out of the private sector’s hands, Mr. Salceda said at the hearing. “That’s 4% of GDP (gross domestic product). In return, we are being asked to provide some tax concessions. By tempering the tax provisions, we made sure that the Filipino people will get even more economic benefits for less taxpayer cost,” he added.

“Gusto kong matuloy ang project na ito (I want this project to push through). But we need stronger guarantees of returns for the public,” he said, noting that the airport project “will make a lot of money.”

The House panel also agreed the SMC subsidiary will be entitled to generate income from the Airport City, after a competent authority has determined that it has fully recovered its investment cost, equivalent to a project internal rate of return (IRR) of 12% per annum. But for IRR in excess of 12%, 100% of the income will be remitted to the National Government.

“There will be hotels and restaurants in the surrounding Airport City, so we want to make sure that the franchise’s tax privileges only extend to the airport operations,” Mr. Salceda said of the project, which will cover 2,500 hectares and accommodate 100 million passengers annually.

Bureau of Internal Revenue Assistant Commissioner Manuel V. Mapoy said during the hearing the tax incentives “should be limited only to the airport construction and not the airport city.”

“If this project fails, baka delikado ang financial system natin. I don’t see from the records how many passengers will pass through Bulacan. I don’t see where we’re going guaranteeing and granting a 50-year franchise,” Aklan Rep. Teodorico T. Haresco, Jr. said at the hearing.

ACT-Teachers party-list Rep. France L. Castro added: “Talong-talo ang mga mamamayan dito dahil sa 5-10 years na tax exemption (Citizens will lose big because of the five to 10 years of tax exemption).”

Gabriela Rep. Arlene D. Brosas also raised concerns about the farmers and residents who will be displaced by the construction of the airport, but SMC Holdings Operations head Edgar L. Dona said the company has programs for affected residents.

SMC and the Transportation department signed the concession agreement for the airport in September 2019. Under the deal, San Miguel will build, operate and maintain the New Manila International Airport for 50 years. The project includes the construction of an 8.4-kilometer toll road, which will link the gateway to the North Luzon Expressway. — with a report from Beatrice M. Laforga