A worker operates the die attach machine at a semiconductor manufacturing plant in Manila, Dec. 10, 2008. — REUTERS

By Justine Irish D. Tabile, Reporter

THE Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) said reform of the incentive system has not yet made the industry attractive to foreign investors, who are also concerned about high costs.

“From the electronics industry perspective, the appeal (to the government) still is to study the effect of incentives rationalization and figure out why we’re still not getting as much foreign direct investment (FDI) compared to Vietnam, Thailand, or Malaysia,” SEIPI President Danilo C. Lachica told reporters last week.

Mr. Lachica said another factor behind the dearth of FDI is the high cost of power, logistics, labor and water.

Multinationals deciding where to locate chip operations will not look too favorably on the Philippines because of cost factors. Such investors “have sites in different countries outside the Philippines and can compare the numbers,” Mr. Lachica said.

“If you have high operating costs, if you have high power costs, and if you don’t have some measures to mitigate that like incentives, then where do you think the CEO will place these new products?” he said.

He said the industry will end up producing legacy products and be left behind as technology turns over very rapidly.

Mr. Lachica said another challenge to the electronic industry is the tax imposed on the depreciated equipment which the industry donates to educational and government institutions.

“The depreciated equipment is still in good working condition and so to aid our students and government agencies, the companies want to donate it, but they are charged the full tax on the acquisition value, even if it’s worth zero today,” he said.

“I think the legislators have agreed (to act on this). But it just hasn’t happened,” he added.

He added that the application process to avail of research and development incentives is burdensome.

“The companies are not able to avail of that easily because what will happen is filing for reimbursement for these incentives is just too difficult for the company. So if you look at the availment rate of these incentives, it is not that high,” he said.

“The clock is running. We have eight and a half years or so for the transition period under the CREATE incentives rationalization, and after that we’re already seeing some expansion projects that are not coming here, investments are not as high as we’d like. So, that’s a big threat to our industry,” he said, referring to the Corporate Recovery and Tax Incentives for Enterprises (CREATE), a component of the comprehensive tax reform program.

The CREATE law made incentives targeted, performance-based, time-bound and transparent. It allowed qualified exporters to enjoy four to seven years of income tax holidays (ITH), followed by 10 years of 5% special corporate income tax or enhanced deductions.

Meanwhile, domestic enterprises are eligible for four to seven years’ ITH, followed by five years of enhanced deductions.

Asked what amendments SEIPI would like to insert in the implementing rules and regulations of the CREATE law, Mr. Lachica said measures that will address the high operating costs will be high on the list.

“Specific measures that would one address the high operating cost and two not make it difficult for the companies to (access) the incentives that will help reduce the operating cost,” he said.

According to Mr. Lachica, the industry is being required to implement an electronic tracking system which adds to the cost burden on the industry, reducing its competitiveness.

“These kinds of things reduce the competitiveness of the industry and make it more difficult. Our appeal to the government really is to have a risk-based (assessment before) making these regulations,” he said.