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‘Financial re-engineering’ plan in airport project

The House of Representatives has recently approved on final reading House Bill 7507, granting San Miguel Aerocity, Inc., a franchise to establish a domestic and international airport in Bulakan, Bulacan and develop an adjacent airport city. SMAI is a subsidiary of San Miguel Corp.

The NMIA would be built in a coastal area in Bulacan province, some 30 kilometers north of Metro Manila. The project is expected to help decongest the Ninoy Aquino International Airport and support countryside growth and development in Central Luzon.

The original draft bill, HB 7241, contained both the creation of an economic zone with preferential benefits, and a franchise with much more generous tax exemptions.

The bill adopts a “financial re-engineering” provision to ensure that the 50-year franchise and contract for the proposed ‘New Manila International Airport’ would be “fairer to both the grantee and the Filipino people.”

This provision was formulated by House Ways and Means Committee chairman Joey Sarte Salceda, one of its leading authors.

“This is an exceptional investment, but I had several issues with the initial HB No. 7241 draft. I made a set of recommendations with the House leadership that financially reengineered its tax provisions to make them more fiscally sustainable,” said Salceda, who thanked the House leadership for adopting his proposal.

“I want this project to happen and I believe in its viability, but I want to make sure we don’t go overboard with our tax incentives. HB 7241 is surely a fairer deal for the Filipino people, that’s why I’m thankful to the House leadership for considering my recommendations” he said.

The committee tackled the substitute bill for the NMIA’s franchise last week, following earlier its approval by the Committee on Legislative Franchises. Committee reports with significant tax implications are automatically referred to the Ways and Means panel for its discussion and approval.

Prior to the hearing, the Bicolano lawmaker recommended the following: 1) the ecozone and the franchise bills should be separated; 2) the ecozone bill should not contain a gross income earned regime; 3) the franchise grant should be ring-fenced to a subsidiary whose sole operation is the airport; 4) the tax provisions be made more compatible with the upcoming Corporate Recovery and Tax Incentives for Enterprises Act; and 5) the boundaries of the ecozone be made more definite. All these recommendations were adopted by the House.

“The final report that came out of the tax committee, and following our own conversations with the House leadership, is significantly more tempered than the original. On its own, the project was already going to be beneficial, a P740-billion infrastructure investment that will entirely be from the private sector. That’s four percent of our GDP. In return, we are being asked to provide some tax concessions;” he noted, adding that “by tempering the tax provisions, we made sure the Filipino people will get even more economic benefits for less taxpayer costs.”

He said the Bulacan airport project would make a lot of money.

“Anything beyond the 12-percent rate of return will be subject to a 50-50 sharing,” he pointed out, referring to the profit-sharing agreement in the franchise, where, above a 12-percent profit margin, SMC’s subsidiary in charge of operating the airport would share half of its profits with the government, and all profits above 14 percent.

He said it is critical that all other income derived outside airport operations should be taxed regularly.

“There will be hotels and restaurants in the surrounding ‘Airport City’ so we want to make sure that franchise’s tax privileges only extend to the airport operations,” he stressed.

The Private Public Partnership Center has assured the House committee that the government will not have financial obligations to SMC, during the panel hearing.

The Albay solon said the version he negotiated with the leadership, and which came out of his committee was “more financially and economically beneficial to the Filipino people”.

“This is probably the biggest single-item investment in the country’s history. San Miguel is a Filipino company that has kept nearly all of its money here, to develop this country. They are doubling down on their commitment to Philippine development with this investment. I want the airport to happen on fair and equitable terms. That is why I worked with the leadership and my colleagues to come up with fairer tax provisions for the franchise. I am proud to have pushed for fairer tax benefits and an attractive profit-sharing scheme for the country. The bottom line, however, is that I want the airport to happen, The House leadership has been very generous with its confidence in my recommendations,” he said.

The House tax committee has already approved a still unnumbered substitute to HB 7483, also authored by the congressman, which would create the Bulacan Airport City Special Economic and Freeport Zone.