House panel approves tax breaks, profit sharing for SMC's Bulacan airport project

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The proposed New Manila International Airport in Bulakan, Bulacan

Metro Manila (CNN Philippines, August 26) — A House of Representatives committee has approved tax exemptions for San Miguel Corporation during the construction of its ₱735.6 billion Bulacan airport complex over the next 10 years.

Voting 25-2, the House Committee on Ways and Means approved tax provisions of a proposed legislative franchise as SMC builds and operates a 2,500-hectare "Airport City" in Bulakan town.

The franchise grants exemptions from the payment of all direct and indirect taxes as well as fees "which emanate exclusively from the construction, development, establishment and operation" of the New Manila International Airport and its commercial complex.

This means that the conglomerate will not need to pay 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.

The committee also agreed to exempt SMC from paying business taxes, franchise taxes, and supervision fees collected by any national or local government authority.

The tax break applies to the 10-year construction period given to the conglomerate to build the aerotropolis, which should cater to up to 200 million passengers yearly through new terminals and four runways for domestic and international flights. This will serve as a new gateway for greater Manila area and is seen to ease congestion at the Ninoy Aquino International Airport.

LOOK: San Miguel gives a sneak peek into proposed Bulacan airport

San Miguel bagged the contract in August 2019 providing a 50-year concession deal. SMC Holdings operations head Edgar Dona said the firm expects to recover its investments in 21 years, based on its 2016 study. However, the airline industry has since slumped due to the global COVID-19 crisis.

The House panel also prescribed a profit-sharing deal where the government will receive any windfall beyond the 12 percent annual internal rate of return once the Airport City operates. A "competent authority" will compute and declare that SMC has fully recovered its investment cost, which will trigger the sharing scheme.

SMC President and COO Ramon Ang said last month that construction will start around October, after a delay due to a review done by the Department of Justice on the contract and due to the initial lockdowns caused by the coronavirus outbreak.

Gabriela Rep. Arlene Brosas and ACT Party-List Rep. France Castro voted against the measure as they questioned if the plan was viable, while pointing the displacement of farmers, fishermen, and coastal communities due to the massive construction activities. However, Dona said livelihood assistance and housing will be provided to affected residents.

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Another lawmaker questioned SMC's capacity to take on more loans given existing debts for other infrastructure projects and business operations.

Still, committee chairman and Albay Rep. Joey Salceda thinks it's a good deal: "We need a new airport but we (the government) don't have the money."

The measure still needs to go through second and third reading approvals in the House, and a fresh round of debates in the Senate.