'No PEACe in the skies'

MANILA, Philippines - Most everyone who knows advertising man Mon Jimenez agrees that he is the perfect choice for the tourism job and can do a lot in selling the Philippines as an ultimate tourist destination. But it looks like he will be facing more and more challenges as he settles into his new job. Like golf, he was given a low handicap but will play with one hand tied to his back. For one, Dutch carrier KLM is already fed up with the continued inaction on its complaint regarding “discriminatory” taxes imposed by government. Aside from the 3 percent common carrier tax on gross receipts, foreign airlines also have to pay a 2.5 percent gross Philippines billings tax where all air transportation coming from the Philippines in an uninterrupted flight (regardless where the tickets are sold) are taxed.

Dutch Ambassador to the Philippines Robert Brinks had said on many occasions that this issue has always been a major concern, considering that KLM is the last European carrier offering nonstop flights from Manila to Europe. You can’t really blame the airline if it decides to pullout after 60 years since the taxes – which are imposed only in the Philippines – have hurt the bottom line not only of KLM but other foreign carriers that fly long distance to get to the Philippines. KLM country manager Cees Ursem had confirmed plans to drop direct flights from Europe to Manila and instead, will have flights stopping over in Hong Kong first before flying to Manila. This move will also impact the hotel industry since the airline crew will have to be accommodated in Hong Kong instead of Manila. Ursem is naturally exasperated because KLM has been practically begging government (congressmen, Cabinet officials, etc.) for over a year now to do something about this “double taxation” issue. As he correctly pointed out, KLM’s pullout could send very bad signals to other airlines and the international community that the Philippines is not a business friendly destination.

Europeans most especially have been totally exasperated about the country on account of the Fraport-Piatco fiasco and the recent filing of a damage suit by Belgian firm Baggerwerken Decloedt en Zoon (BDC) over the junking of its contract to conduct a dredging project in Laguna Bay. And now, here comes the controversial P35-billion PEACe bonds (Poverty Eradication and Alleviation Certificates) that is shattering the peace in the banking and investor community due to a policy “flip-flop” (as described by critics), with the Bureau of Internal Revenue (BIR) insisting the bonds should be levied a 20-percent final withholding tax. This was disputed by several banks who pointed out that the BIR ruling is contrary to earlier government assurances that the bonds would not be subjected to taxes. The banks said the imposition of the final withholding tax would damage the government’s credit reputation and will send a strong, negative message to investors that they cannot rely on this government as far as stability is concerned. The issuance of a temporary restraining order by the Supreme Court has averted a conflagration but no doubt this is only short term.

The Philippines is also getting a beating from bloggers and social media users who complain about the stinking toilets, rundown facilities, pickpockets and corrupt Customs and Immigration officers who prey on tourists and visitors. As a matter of fact, NAIA was adjudged the worst airport in the world by travel website “The Guide to Sleeping in Airports” – up from its previous ranking as the fifth worst airport in the world. This is certainly not the kind of distinction that would encourage tourists to visit the Philippines.

As things stand, the tourism industry has lost over P66 billion in revenues for the past two years since the country was downgraded to a Category 2 rating by the US Federal Aviation Administration (FAA). Can you imagine, the Philippine Airlines – the only local carrier to be accredited with the IATA Operational Safety Audit by the International Air Transport Association – cannot add new flights and is prevented from entering the US using the new Boeing B-777 aircraft manufactured in the United States because of the downgrade? It’s been a year since then-Tourism Secretary Bertie Lim confidently announced that we will restore the Category 1 rating by March 2011. Well, it looks more like we’ve been getting more downgrades than upgrades since March.

Spy Bits sources informed us however that the real behind-the-scene issue with the Category 2 downgrade has to do with PAL’s continued resistance of the open skies policy. PAL is urging the Aquino government to amend Executive Order 29, the so-called “pocket open skies” policy, because it lacks reciprocity – meaning local airlines are not assured of air access rights in other countries. The FAA downgrade, our source claimed, is the US government’s way of punishing PAL for resisting the open skies policy.

With President Noynoy Aquino set to visit London (not to visit the Queen) early next year, how will he be able to sell the country as an investment destination when all these unresolved issues continue to portray the Philippines as unreliable and incoherent?

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