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NEWS: Senate OKs San Miguel franchise, tax perks for Bulacan airport on final reading

Source: https://www.cnnphilippines.com/business/2020/10/12/Senate-approves-San-Miguel-Bulacan-Airport-franchise.html


Metro Manila (CNN Philippines, October 12) — San Miguel Corporation's planned international airport in Bulacan is a step closer to receiving tax breaks and an official franchise from Congress.


With 22 votes and zero opposition, the Senate on Monday approved on third and final reading the bill granting San Miguel Aerocity Inc. the authority to build, develop, and operate the New Manila International Airport in Bulakan town, which makes the measure closer to becoming law.


San Miguel bagged the ₱736-billion project in 2019 following an unsolicited proposal it submitted to the Department of Transportation. The airport will have four runways for domestic and international flights, which should cater to up to 200 million passengers yearly.


The franchise gives the conglomerate 50 years to operate the project before it turns over its ownership and maintenance to the national government.


This includes a 10-year period to build airport facilities. During this time, San Miguel is exempt from paying all direct and indirect taxes and fees related to the project, such as income taxes, value-added taxes, percentage taxes, excise taxes, documentary stamp taxes, customs duties and tariffs, as well as property taxes on land, buildings, and personal property.


For the rest of the franchise term, the bill states that the company will remain exempt from paying income and real estate taxes until authorities declare that the proponent has "fully recovered its investment cost" on the project.

The measure also imposes a profit-sharing scheme, where the government will receive any windfall beyond the 12 percent annual internal rate of return once the Airport City operates.


Apart from building airport infrastructure, San Miguel is also authorized to construct and maintain toll roads, railways, mass transport systems, hotels, hangars and similar facilities within the 2,500-hectare complex which spans Barangays Taliptip and Bambang of the said town. The area will be called "Airport City."


This will serve as a new entry point to the greater Manila area and is seen to ease congestion at the Ninoy Aquino International Airport, and even complement the Clark International Airport in nearby Pampanga.

The bill requires SMC to start construction within a year once the law is passed, and to have the airport running in the next 12 years. It also orders the private firm to pay a cash bond to the Civil Aviation Authority of the Philippines, which may be forfeited if SMC fails to deliver.


San Miguel is also required to account for its gross receipts and submit an annual tally to the Commission on Audit and the Bureau of the Treasury.


State seismologists earlier warned that the Bulacan airport is at risk for heavy flooding and soft ground, but the project proponents said these will be addressed by engineering design with the help of its global partners Groupe ADPi, Meinhardt Group and Jacobs — the same companies behind Changi Airport in Singapore, the Atlanta Airport in the United States, and Charles de Gaulle Airport in France.


​SMC earlier assured that displaced communities will be relocated and jobs will be provided, as the coastal area is cleared for commercial development.


Senators were fully sold to the idea of the airport complex, banking on the project to generate thousands of jobs, especially for Filipino workers displaced by the COVID-19 pandemic.


Senator Richard Gordon estimates the foregone taxes at ₱38 billion during the first decade of construction, followed by as much as ₱2 billion in waived taxes annually once the international gateway starts operating.


"There is nothing wrong with being rich in the country so long as you make your money in an honest, creative way," Gordon said during the Senate plenary session, adding that the project will likely attract more foreign investors to Central Luzon.


Meanwhile, Senate Minority Leader Franklin Drilon warned that the tax perks granted to San Miguel should stay intact despite a separate bill backed by the Department of Finance that seeks to overhaul tax incentives given to investors and exporters.


"It is my submission that this becomes a contract between the investor and the state... We should make the (tax incentives) rationalization effective on the new entrants, not on those who are already here," Drilon said, referring to the Corporate Recovery and Tax Incentives for Enterprises or CREATE Act currently pending before the plenary.


*Arceo Balmoja & Irasusta Law Firm is a foreign investments, tax, and real estate law office in Bulacan that serves clients anywhere in the Philippines. Its corporate attorneys and property lawyers have an extensive experience in conducting land due diligence and closing real estate transactions. They have advised both local and foreign clients in investing in large-scale projects of the government, especially with regard to investments, tax, and real estate matters. Should you wish to learn more about investments, tax, real estate or land, you may contact us at info@abilawbulacan.com to get in touch with any of our corporate, tax, and property lawyers.

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