aviation industry

Despite criticism, Senate grants San Miguel franchise for Bulacan airport

Aika Rey

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Despite criticism, Senate grants San Miguel franchise for Bulacan airport
Senators point out that the CREATE bill, which seeks to rationalize tax perks, may run in conflict with the incentives granted to San Miguel Aerocity

Voting 22-0, the Senate granted Ramon Ang-led San Miguel Aerocity Incorporated a franchise to construct and operate the planned P736-billion New Manila International Airport in Bulacan.

The franchise bill, which received criticism from environmental groups, is now up for President Rodrigo Duterte’s signature. Once the bill is signed into law, the 10-year construction can begin anytime soon after the needed permits are acquired.

On Monday, October 12, senators were all praises after the measure hurdled the 3rd and final reading during session, saying that the airport will create up to a million jobs.

Senator Grace Poe, the sponsor of the bill, said at least 450,000 jobs are expected during construction alone.

Senator Joel Villanueva, who voted in favor of the measure with a “resounding yes,” thanked other senators for approving the franchise plea for the airport which will be constructed in his home province of Bulacan.

“We’re so grateful because not only will it produce a million jobs without expense – without the government spending a single cent, without any government [guarantees] – we know that this is a dream come true for all of us,” said Villanueva.

Senate President Vicente Sotto III, who previously said the airport was also his idea, thanked his colleagues for the passage of the bill.

“This was an idea that was born 17 years ago, November of 2003, when ambassador Danding Cojuango, Ramon Ang, Fernando Poe Jr, Ed Angara, Tessie Aquino Oreta, Greg Honasan, and yours truly met, thinking that the President then will be Fernando Poe Jr. We had the idea of building a new airport city. We [didn’t] know the location yet, but that was the idea,” said the Senate President.

The late Cojuangco was the chairman and chief executive officer of San Miguel Corporation (SMC) and the founding chairman of the Nationalist People’s Coalition (NPC), Sotto’s political party. NPC supported the elder Poe and Senator Poe during their campaigns.

Spanning 2,500 hectares, the airport is envisioned as an alternative gateway to the congested Ninoy Aquino International Airport. It will have 4 runways, 8 taxiways, and 3 passenger terminals eyed to serve some 100 million passengers annually. 

Philippine Institute of Volcanology and Seismology Officer in Charge Renato Solidum Jr previously said there are several geohazards at the planned airport’s location. SMC said these were factored in for its detailed engineering design.

The Manila Bay and its surrounding areas are highly susceptible to liquefaction, a phenomenon where loosely packed and waterlogged sediments near the surface lose their strength due to ground shaking and appear to flow like fluids. 

Critics also pointed out that residents have already been displaced because of the project.

Tax perks

Under the proposed measure, San Miguel Aerocity, a subsidiary of SMC, would enjoy tax exemptions in exchange for the construction, development, and operation of the new airport.

The exemptions include value-added taxes, income taxes, percentage taxes, excise taxes, documentary stamp taxes, customs duties and tariffs, taxes on real estate, buildings, and personal property, business taxes, franchise taxes, and supervision taxes.

Section 16 of House Bill No. 7507 states that taxes on real estate, buildings, and personal property will only be imposed once an authority determines that the Ang-led firm has “fully recovered its investment costs on the airport and the airport city.”

When San Miguel Aerocity’s investments have been recovered, it would have to remit excess earnings to the government. The firm is entitled to the 12% of the return rate per year, and revenues exceeding that should be turned over to the government.

Clash with tax bill?

Given the tax exemptions granted to San Miguel Aerocity, Senate Minority Leader Franklin Drilon and Senator Panfilo Lacson pointed out that the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill may run in conflict with the incentives granted to the franchisee.

The CREATE bill, formerly Citira, seeks to lower corporate tax and rationalize tax perks. Once passed, senators said, it could repeal or amend the perks listed in the franchise granted to the San Miguel firm.

“We should be very clear on this issue, Mr President. Because there are two catch-all phrases in the CREATE bill, one is repealing and the other one is amendatory. We should really synchronize or reconcile those two provisions,” Lacson said.

Senator Francis Tolentino agreed that the franchise bill may be “circumvented by a general law” and suggested that the firm could instead be compensated in case the CREATE bill repeals the tax perks.

Drilon said, however, that the corporate tax bill should instead focus on new entrants, to prevent the government from rescinding the incentives provided to firms which attracted them to invest in the country in the first place.

“It is my submission that this becomes a contract with the investor and the state because principles of equity will not permit that – after the state has granted these incentives and you have encouraged the private sector on this to invest – suddenly you withdraw the incentives,” said Drilon.

“That is the basic principle why I have basic problems about the rationalization of fiscal incentives insofar as the present investors are concerned,” the minority leader added.

Poe, meanwhile, opposed rationalizing the incentives laid out in the franchise bill after the fact, citing the sanctity of contracts.

“It’s really detrimental if we move the goalposts in the middle of the game. And I think that we have committed to this and maybe that could spill over to CREATE. The contracts that we have made in the past…we really have to honor them,” Poe said.

“The goal is for our commitment here, the terms not be repealed by a general law or anything after that because the government really needs to honor its contract. That’s all.” – Rappler.com

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Aika Rey

Aika Rey is a business reporter for Rappler. She covered the Senate of the Philippines before fully diving into numbers and companies. Got tips? Find her on Twitter at @reyaika or shoot her an email at aika.rey@rappler.com.