ELECTRONICS MANUFACTURERS — whose products make up more than half of the country’s goods sold abroad — expect 50% job loss by 2026 if the current version of the bill that overhauls tax incentives was passed, Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) President Danilo C. Lachica said.
Mr. Lachica told reporters on the sidelines of a forum on Tuesday that the industry projects 38,000 annual employment losses between 2022 to 2026 — totaling some 190,000 positions — cutting down half of the 380,000 direct jobs in electronics.
He said these job losses are probable “if the version of CITIRA that will be passed doesn’t address the concerns of the industry.”
SEIPI in a position paper last October offered recommendations for the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA), including retention of five percent tax on gross income earned (GIE) in lieu of national and local taxes, after expiration of the income tax holiday for existing investors who meet performance criteria.
The group also recommended the increase of GIE tax to seven percent from five percent for new and expansion projects, as well as to remove the five-year cap on import duty exemption of equipment, parts and materials.
SEIPI as well as the Philippine Economic Zone Authority have pressed for a longer 10- to 15-year period for companies now enjoying tax perks to shift to the new incentive scheme, compared to the two to five years in the CITIRA bill approved on Sept. 13 by the House of Representatives.
The same measure also removes the five percent GIE tax that kicks in after the income tax holiday expires.
It also slashes the regular corporate income tax to 20% in 10 years from 30% currently, which is the highest among major Asian economies.
Mr. Lachica explained that job losses begin in 2022 due to the nature of the industry. “The way our industry works, we will continue to run the products until they are obsoleted. But if we don’t have expansions, if the multinationals decide to locate elsewhere, then once the products are obsoleted the factory will shut down,” he said.
The industry provides employment, including indirectly, for at least three million people.
CITIRA’s principal author, Albay 2nd District Rep. Jose Maria Clemente S. Salceda who heads the House Ways and Means Committee, in a mobile message on Sunday said he wants to see the basis for SEIPI’s job-loss claim.
Asked on SEIPI’s proposed revisions for the bill, Mr. Salceda replied: “I will wait for the Senate version. I stand by the House version. No GIE as we know it.”
“GIE as we know, it is pure fiscal evil, mother of all transfer pricing — P560 [billion revenues foregone] in 10 [years] and most unfair to 1 [million] firms paying 30% with more employment and value contribution to the economy.”
CITIRA now awaits Senate action, but the Trade department said last week it would propose a new version to the Senate by yearend that would incorporate the longer transition period.
The Finance department supports the two- to five-year transition period in the bill approved by the House, while the Trade department has backed a five- to seven-year transition period in general and a seven- to 10-year transition for companies that employ over 3,000 people.
A SEIPI member company employing about 300 people will shut its Philippine operations by yearend, Mr. Lachica said, and more firms drafting exit plans for the next few years.
Companies exiting the country, however, “will not say it’s because of the tax reform,” he said, but noted it’s part of what companies consider.
“Some companies have exit plans. I don’t know if they’re gonna be triggering them once they see the final version [of the bill]. I don’t want to be a bearer of doom and gloom but multinationals — they always have contingency plans,” he said.
“I think it’s premature at this point to say the sky is falling, but there’s always the risk.”
Latest available data from the Philippine Statistics Authority show electronics products made up 56.4% of total merchandise exports at $29.654 billion as of September, growing 2.2%% from $29.029 billion in 2018’s comparable 10 months.
Semiconductors alone, which made up 73.14% of Philippine electronics products sold abroad and 41.27% of total merchandise exports as of September, edged up by a percent to $21.688 billion from $21.464 billion, the same data show.
SEIPI has 346 members, with over 100 in manufacturing. — Jenina P. Ibañez