Legal basis and authority
- The President is authorized under subparagraph 4 of Section 25 (b) of the National Internal Revenue Code, as amended, to prescribe the tax on rentals, charter and other fees earned by non-resident lessors of aircraft upon recommendation of the Secretary of Finance (preamble).
- Executive Order No. 437 increases the preferential tax rate on the covered income to lessen the regressivity of the income tax system (preamble).
- Presidential Decree No. 1959 is identified as having increased the common carrier’s tax by one percentage point in 1984, which is described as one of the bases of the prior 7.5% preferential tax rate (preamble).
Purpose and tax policy direction
- Executive Order No. 437 directs the increase of the 7.5% preferential tax rate on the rental income of non-resident lessors of teased aircraft to 8.5% (preamble).
- The preferential treatment for the covered income is maintained relative to the normal tax rate of 35% imposed on other corporate incomes (preamble).
Aircraft rentals and covered income
- Section 1 imposes a rate of 8.5% on rentals, charter and other fees derived by non-resident lessors of aircraft.
- Section 1 applies to the specific income categories of rentals, charter, and other fees when earned by non-resident lessors of aircraft.
Non-aircraft equipment remains at 7.5%
- Section 2 keeps a rate of 7.5% imposed on rentals and other fees derived by non-resident lessors of machineries and other equipment.
Effectivity rule and implementation timing
- Section 3 provides that Executive Order No. 437 takes effect two (2) days after the completion of publication in a national newspaper of general circulation, establishing the effective date timing rule for tax application.