DoF warns of PHP 5-B revenue loss if travel tax is eliminated

Analysts are urging the Philippine government to abolish the “outdated” travel tax, but the Department of Finance (DoF) has warned this could lead to as much as PHP 5.1 billion in revenue losses.

In a statement sent to BusinessWorld, the DoF said it is reviewing Senate Bill (SB) No. 424, which seeks to remove the travel tax imposed on individuals leaving the Philippines via international flights.

“Highly preliminary (estimates show the) removal of travel tax would have cost the government around P5.1 billion in 2023,” the DoF said via Viber message on Friday.

“We will be projecting 2025 onwards and the distributional impact,” the DoF said.

Senator Alan Peter S. Cayetano, author of SB 424, has estimated PHP 4 billion in foregone revenue from the removal of the travel tax. However, he expects the government to gain around PHP 299 billion through increased tourism and spending.

The travel tax was first imposed under Republic Act No. 1478 in 1956 and later amended through Presidential Decree No. 1183, issued by then-President Ferdinand E. Marcos in 1977.

The government collects a travel tax of PHP 1,620 (USD 28.35) from economy air passengers and PHP 2,700 (USD 47.24) from first class air passengers.

Exempted from paying the travel tax are overseas Filipino workers (OFW), Filipino permanent residents abroad who stayed less than a year in the Philippines, and children aged two years and below.

“Abolishing the travel tax is a bold move, people-first move. It empowers more Filipinos to explore, spend, and stimulate the economy. We may lose roughly P4 billion in tax, but we stand to gain close to PHP 300 billion in tourism and local business growth. It’s a smart trade-off,” Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said in a Viber message.

Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said the removal of the travel tax would mean less revenues for the government that is already facing “a worrisome fiscal problem.”

“[Travelers] are willing to pay the tax. The travel tax is not a disincentive for both Filipinos and foreigners to travel to and from the Philippines. And the travel tax is not the real barrier to attracting tourists,” Mr. Sta. Ana said in a Viber message.

Mr. Sta Ana pointed out that the bigger question is how the travel taxes are being used.”

Under the law, 50% of the proceeds from the travel tax collection go to the Tourism Infrastructure and Enterprise Zone Authority (TIEZA), while 40% of the proceeds go to the Commission on Higher Education for tourism-related education programs. The remaining 10% goes to the National Commission for Culture and the Arts.

Nigel Paul C. Villarete, a senior adviser on public-private partnerships at the technical advisory group Libra Konsult, Inc., said most Filipino travelers are not aware of how the travel tax proceeds are used.

“The government must find ways to fund the same. Or we tax the airlines directly since they will still get it from the ticket sales. There are many ways of doing that (instead of collecting it from air travelers),” Mr. Villarete said.

Analysts said the removal of the travel tax would make international flights more affordable for Filipinos and boost tourism activity.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said removing the travel tax would lower the cost of international travel for Filipinos.

“The P5.1-billion revenue loss from abolishing the travel tax is relatively small in the broader fiscal picture, but it funds important programs in education, tourism, and culture,” Mr. Rivera via Viber message said.

Raymond “Mon” Abrea, chairman and chief executive officer of the Asian Consulting Group, said the removal of the travel tax is long overdue as it discourages tourism and regional mobility.

“The Philippines remains the only ASEAN (Association of Southeast Asian Nations) country that still imposes this outdated tax on outbound travelers,” Mr. Abrea told BusinessWorld in a Viber message at the weekend.

He noted that while OFWs are exempt, the travel tax disproportionately affects ordinary residents, particularly those flying economy.

“We can’t promote tourism while charging people to leave the country. It’s time to align with our ASEAN neighbors and put the people’s mobility — and the economy — first,” Mr. Abrea said.

He said TIEZA collected P7.8 billion from its share of the travel tax last year, but this can be subsidized by the general fund.

Mr. Rivera said the government should ensure there is a sustainable alternative to funding tourism investments.

“But until then, a full repeal may be premature. A more targeted reform like exempting OFWs, students, or low-income travelers might be a more balanced approach,” he said.

Eleanor L. Roque, tax principal of P&A Grant Thornton, also backed the removal of the travel tax, citing its high cost and inconvenience for passengers.

“The government has been collecting travel tax since 2009 when it was approved but we have not seen any substantial improvement in tourism because of it,” she said in a Viber message.

Air passengers can pay the travel tax at airport payment counters, the TIEZA website and authorized travel agencies. Travelers can also opt to include payment of the travel tax when buying their airline tickets.

“Abolishing the travel tax would encourage more Filipinos to travel abroad and thus benefit that segment of the aviation sector catering to international travel,” Rene S. Santiago, former president of the Transportation Science Society of the Philippines, said in a Viber message to BusinessWorld.

Under Mr. Cayetano’s bill, nationals from ASEAN member states are also exempted from the travel tax.

This would also align the Philippines with its commitments under the ASEAN Tourism Agreement of 2002, which calls for the gradual elimination of travel levies among member countries to promote regional mobility and tourism integration.

Mr. Marcos last year granted travel tax exemptions to all travelers departing from international airports and seaports in Mindanao and Palawan to any destination in the Brunei Darussalam-Indonesia-Malaysia-Philippines-East ASEAN Growth Area. The tax exemption will be in place until June 30, 2028. — Aubrey Rose A. Inosante, Reporter with inputs from Ashley Erika O. Jose