QuestionsQuestions (ORDICE NO. _______ *)
Executive Order No. 437 increases the tax on rentals, charters, and other fees earned by non-resident lessors of aircraft, from 7.5% to 8.5%, pursuant to the National Internal Revenue Code, as amended.
An 8.5% tax rate is imposed on rentals, charter and other fees derived by non-resident lessors of aircraft.
No. Section 2 states that the 7.5% preferential rate remains imposed on rentals and other fees derived by non-resident lessors of machineries and other equipment.
The EO notes that the common carrier’s tax of 2%—one basis for the earlier 7.5% preferential tax rate—was increased by one percentage point in 1984 by Presidential Decree No. 1959.
It cited the goal of lessening 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 stated that even at 8.5%, the preferential tax remains favorable compared to the normal corporate income tax rate of 35%.
The EO covers rentals, charter fees, and other fees derived by non-resident lessors of aircraft.
It takes effect two (2) days following the completion of its publication in a national newspaper of general circulation.
Aircraft rentals are increased to 8.5%, while rentals and other fees for machineries and other equipment remain at 7.5%.
“Preferential tax treatment” refers to a lower tax rate applied to specific non-resident lessor rental income compared to the general corporate tax rate. It is maintained because 8.5% remains lower than the 35% normal corporate income tax.
It provides the President with authority to prescribe the tax on rentals, charter and other fees earned by non-resident lessors of aircraft, machineries and other equipment upon recommendation of the Secretary of Finance.
Aircraft rental income would be taxed at 8.5%, while machinery rental/other related fees would be taxed at 7.5%, assuming the income qualifies under the corresponding categories in the EO.
It signals that the EO is not an independent tax statute but an exercise of delegated legislative authority within the framework of the NIRC.
The EO indicates that the President’s action was taken “upon recommendation of the Secretary of Finance,” reflecting the requirement under the delegating provision.
Presidential Decree No. 1959 (1984) increased the common carrier’s tax, which the EO identifies as one of the bases for the earlier preferential tax rate.