Action for Economic Reforms (AER) expresses deep concern over the proposed Senate Bill 1823, a bill granting a franchise to the San Miguel Aerocity, Inc. to construct a domestic and international airport in the Municipality of Bulakan.

In Section 16 of the proposed measure, the government is mandated to provide San Miguel Aerocity, Inc. exemptions from all national and local taxes for a period of up to fifty (50) years. AER urges the Senate to strike down the tax exemption provision of Senate Bill 1823.

First and foremost, fiscal incentives can be justified whenever a failure in the market exists. In this issue, market failure is absent because current and future demand for air travel can be addressed by enhancing and expanding existing airports. According to a Japan International Cooperation Agency (JICA) study released in 2016 , airport demand forecast shows that enhancements in the services provided for by the Ninoy Aquino International Airport (NAIA) and the Clark International Airport (CRK) will address current and future demand for air travel in the Greater Capital Region (GCR).

Also, the planned airport in Bulacan is in close proximity to the CRK. Hence, it will merely be competing with an enhanced and expanded CRK for the same passengers, instead of serving a market that cannot access CRK. This ironically creates the condition for market failure since two airports close to each other lead to sub-optimal outcomes.

If a private sector proponent desires to build a new airport, absent a solicitation from government, it must bear the entire burden of risk of the project without government support. This is more compelling if the proposed airport will compete with two existing facilities owned by government. San Miguel Aerocity, Inc. has the freedom to construct its airport if it wants to compete with NAIA (Ninoy Aquino International Airport) and Clark, but like any business or entrepreneurial activity, it must fully bear the risk.

The executive branch of government has also made it clear that public funds should not bear the risk or costs . Clearly from his statement, Finance Secretary Carlos Dominguez will not agree to government and taxpayers being burdened by the costs, including tax expenditure, of this unsolicited private undertaking. The costs and risks have to be shouldered by the San Miguel Aerocity, Inc.

In this regard, San Miguel must be transparent to Congress and the public regarding the tax expenditures that this airport project wi entail. The government and the public must know the forgone revenues that will result from this project. It must be ascertained that San Miguel’s business model is not anchored on government subsidy or tax incentives.

Secondly, the construction of the San Miguel Aerocity, Inc. airport is a private good. Given that the enhancement and expansion of the two existing airports will adequately service the needs of air passengers in the mega Manila area, thus addressing congestion and preventing exclusion, the public good is met. The entry of San Miguel Aerocity assumes the character of being rivalrous—a private profit-seeking company that will compete with the existing airports. Yet it seeks government subsidy.

Lastly, the tax exemption in the bill runs contrary to the core objectives of the Corporate Recovery and Tax Incentives for Enterprises Bill (CREATE). AER supports the passage of the CREATE Bill, the proposed tax reform package that will rationalize the system of providing fiscal incentives and improve the country’s competitiveness.

Currently, the Philippines has more than 150 investment laws and 210 non-investment laws that provide tax incentives. One of the main goals of CREATE is to simplify the administration of fiscal incentives by harmonizing and consolidating all these existing laws. This way, administration and monitoring of these incentives will be well coordinated. It also creates the Fiscal Incentives Review Board to provide a comprehensive and thorough review of granting incentives.

Legislating another tax incentive such as the provision in SB 1823 undermines the goal of CREATE. It sets a dangerous precedent where individual corporations will just approach Congress for tax perks, instead of going through the systematic fiscal incentives criteria that CREATE offers. It opens the floodgates for more corporate lobbying for fiscal incentives. We thus propose that the San Miguel Aerocity, Inc. airport project, if it wants to pursue tax incentives despite our objection, be subject to the process and standards of CREATE, which will soon be passed.