SEIPI asks for review of incentives rationalization
Economy

SEIPI asks for review of incentives rationalization

Jul 21, 2022, 8:38 AM
Rose De La Cruz

Rose De La Cruz

Columnist

A vital export product of the country—electronics and semiconductors –might become unattractive if the government pushes through with its incentives rationalization plan under the CREATE law. Investors will just relocate to other Asian countries because of their competitive production costs.

One of the major exporters of the country, The Semiconductor and Electronics Industries in the Philippines (SEIPI) Foundation Inc., said it would seek an audience with President Marcos and his Cabinet regarding the review of incentives rationalization under the CREATE law (or the Corporate Recovery and Tax Incentives for Enterprise of 2021) which though it reduces the taxes of corporations requires them to surrender their incentives in exchange for such tax edge.

Ever since April last year, SEIPI had warned of sinking into manufacturing of law-value products once investors pack up because of the surrender of their tax perks as mandated by the new fiscal law.

SEIPI president Danilo Lachica had said some chips assemblers may leave the country in about 10 years due to the impact of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act on their operations.

The CREATE Act slashes the corporate income tax from 30 percent to 25 percent but requires exporters to surrender their fiscal incentives within 10 years.

Already, Lachica said, about $3.2 billion of investments that could have gone to the Philippines have instead been moved by multinational firms to other countries including Vietnam, Thailand, Malaysia, and China due to issues on the CREATE law, particularly the rationalization of incentives.

Lachica did not identify the publicly-listed companies that have been eying to locate to other countries but said “I think one of the biggest concerns in addition to the high operating cost would be the incentives.”

“In fact with former Finance Secretary Carlos Dominguez III when I first met with them, we said you know it’s way to level the playing field for incentives’ but we were proposing that let’s level the playing field first in operating cost because the reality is from the multinational’s perspective, incentives or not, they’re gonna go to the country which gives the most competitive operating cost in terms of cost per unit,” Lachica told Business World.

At the webinar Wednesday SEIPI urged the government to first review the incentives rationalization, which it said is putting the industry at a disadvantage. He advised Dominguez before to “level the playing field in operating cost before rationalizing incentives.”

He said investors by nature pursue the country with the most competitive operating cost.

He recalled Dominugez saying before that “we increased incentives investments in the Philippines by 50 percent…of 2020, the reality is we’re sadly lagging behind Vietnam and other Asean countries.”

He said he hopes the Marcos administration would “review the incentives rationalization part because it’s really putting us at a disadvantage.”

Lachica noted that while the industry enjoys the 10-year transition period under the CREATE law, the investments for new products and new technologies “are not being located in the Philippines.”

“So what’s happening especially for our industries that depend on new products and new technologies, is they’re just gonna run these legacy products and then when they become obsolete, there’s not much need for the Philippine side, so that’s the scary part,” he emphasized.

Lachica last June underscored that although the demand has always been there for the electronic exports, the semiconductor industry is not spared from challenges that it must face, particularly the higher cost of logistics, power, operating and utilities.

With this, Lachica stressed that the government should review the incentives rationalization and promote the ease of doing business and reconcile policies that have to a certain extent really proved helpful to the industry.

Lachica said while he already informed former Finance Secretary Dominguez, former National Economic and Development Authority (Neda) Secretary Karl Kendrick Chua, and both chambers of Congress about their concerns, “it fell on deaf ears.” Still, he said he hopes that the new administration will listen to their plea.

“While CREATE was passed into a law to reduce corporate income tax, there are still concerns on its long-term effects on the incentives rationalization. The operating costs in the Philippines is still quite high compared to Vietnam and Thailand,” Lachica said in the Senate hearing.

He said while manufacturers would maintain their operations here for the time being, they could eventually move out upon giving up their incentives.

“We will continue to operate and we won’t see a mass exodus of the electronic companies, but given the attractive incentives and the lower operating costs of Vietnam, Thailand, Malaysia and Indonesia, the concern really is we will be stuck with legacy products,” Lachica said.
“At the end of this transition period, when we are stuck with legacy products that are obsolete, you can expect a movement of several electronics companies out of the Philippines,” he added.

Legacy products refer to goods that no longer hold value in the market, such as keypad phones, which were wiped out by the innovation of smartphones.

Lachica asks the government to come up with measures to cut the cost of doing business here. He said multinationals can transfer their production volumes from one Southeast Asian country to another, and it may be impossible to retrieve their investments in periods such as this when uncertainties run high.

The electronics industry accounts for at least half of the country’s export total with its shipments of semiconductors, circuit boards, automotive parts, among others.

Last year, exports of electronic parts declined by nearly eight percent to $36.98 billion, from $40.02 billion in 2019, as global manufacturers wrestled with cancellation of orders from buyers hurt by the pandemic.

Tags: #SEIPI, #DoF, #NEDA, #Marcosadministration, #incentivesrationalization, #exports, #economy


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