QuestionsQuestions (EXECUTIVE ORDER NO. 437)
It is based on subparagraph 4, Section 25(b) of the National Internal Revenue Code, as amended, which authorizes the President to prescribe the tax on rentals, charter and other fees earned by non-resident lessors upon recommendation of the Secretary of Finance.
It increases the tax on rentals, charter and other fees earned by non-resident lessors of aircraft from 7.5% to 8.5%.
No. Under Section 2 of EO 437, the rate of 7.5% remains imposed on rentals and other fees derived by non-resident lessors of machineries and other equipment.
The applicable rate is 8.5%.
The rate remains 7.5%.
The stated rationale is to lessen the regressivity of the income tax system by increasing the present 7.5% preferential tax on rental income of non-resident lessors of teased aircraft.
It states that since the common carrier’s tax of 2% (a basis of the 7.5% preferential rate) was increased by one percentage point via Presidential Decree No. 1959 in 1984, the preferential rate should also be adjusted accordingly.
It explains that even after increasing the preferential tax, the rate remains much lower than the normal tax rate of 35% imposed on other corporate incomes.
The President’s authority exists under the NIRC and must be exercised upon recommendation of the Secretary of Finance.
It takes effect two (2) days following the completion of its publication in a national newspaper of general circulation.
Rentals, charter, and other fees derived by non-resident lessors of aircraft.
Section 3 provides the rule for effectivity; taxpayers’ liability under the 8.5% rate applies only after the publication requirement is completed and two days thereafter.
Non-resident lessors of aircraft are taxed at 8.5%, while non-resident lessors of machineries and other equipment remain taxed at 7.5%.
The EO uses language of prescribing a specific tax rate on “rentals, charter and other fees,” which indicates a special/withholding-type rate for that particular income stream, but the text itself does not expressly label it as “final.”
Subparagraph 4 of Section 25(b) of the National Internal Revenue Code, as amended.