Tax Exemption of Cebu Air's Importation of Aviation Gas and Other Petroleum Products for Domestic Operations

July 20, 1999 BIR RULING NO. 110-99 R.A. 7151-000-00-110-99 Romulo Mabanta Buenaventura Sayoc & de los Angeles 30 th Floor Citibank Tower Paseo de Roxas, Makati City Attention: Attys . Perry L . Pe and Jason L . Fernandez Gentlemen : This refers to your letter dated May 11, 1999 requesting for a ruling that the petroleum products purchased or imported by Cebu Air, Inc. (CAI) from abroad for use in its domestic operations are exempt from the payment of all taxes imposed under the National Internal Revenue Code of 1997 (NIRC), pursuant to Republic Act (RA) No. 7151 in relation to Presidential Decree (PD) No. 1590 and Letter of Instructions (LOI) No. 1481 dated October 31, 1985. It is represented that CAI is a corporation organized and existing under the laws of the Republic of the Philippines; that it is the holder of a legislative franchise granted under RA No. 7151 to establish, operate and maintain transport services for the carriage of passengers, mail, goods and property by air, both domestic and international, with Cebu as its-base; that CAI currently operates a fleet of ten (10) DC-9-32 aircraft to fly various domestic routes; and that in order to maintain its competitiveness in the market and to assure the riding public of the most reasonable air fares, CAI intends to import aviation gas, fuel, oil and other petroleum products for use exclusively in its domestic operations. In reply, please be informed that under the pertinent provisions of Section 11 of RA No. 7151 (franchise of CAI) in relation to Section 13 of PD No. 1590 (franchise of Philippine Airlines) which state as follows: "SEC. 11. Tax Provisions . The grantee shall pay to the Philippine Government during the life of this franchise tax of five percent (5%) of the gross revenues derived by the grantee from transport operations. " In the event that any competing individual, partnership or corporation receives and enjoys tax privileges and other favorable terms which tend to place the herein grantee at any disadvantage, then such provisions shall be deemed ipso facto part hereof and shall operate equally in favor of the grantee . "The grantee shall, however, be subject to income tax levied under Title II of the National Internal Revenue Code, as amended, and tax on its real property under existing laws on revenue earned from activities other than air transportation." (Section 11, Republic Act No. 7151)" (Emphasis ours) "SEC. 13. (Philippine Airlines franchise) In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax: "(a) . . . "(b) A franchise tax of two percent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to the transport or nontransport corporation provided that with respect to international air transport service, only the gross passengers, mail and freight revenues from its outgoing flights shall be subject to this tax. "The tax paid by the grantee under either or the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature or description imposed, levied, established, assessed or collected by any municipal, city, provincial or national authority or government agency, now or in the future. . . (Sec. 13(b), PD No. 1590)" the tax exemption privileges granted to Philippine Airlines, Inc. (PAL) shall automatically become part of CAI's franchise and shall operate equally in CAI's favor. (BIR Ruling No. 3-95 dated January 6, 1995) In BIR Ruling No. 013-99 dated January 29, 1999, this Office ruled that: ". . . petroleum products purchased or imported by PAL from abroad can be used by it in its domestic operations without payment of tax since the said products were not a domestic purchase. The intention of LOI No. 1483 is to impose a tax on domestic petroleum products purchased by PAL for use in its domestic operations." dctai In the light of the above, the aviation gas, fuel, oil and other petroleum products purchased or imported by CAI from abroad for use in its domestic operations are likewise exempt from all taxes imposed under the NIRC, pursuant to Section 11 of RA No. 7151 in relation to Section 13 of PD No. 1590 and LOI No. 1483. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling is considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue