DTI counting on TRABAHO bill to expand supplier networks

THE Department of Trade and Industry (DTI) said it hopes the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill will help develop supplier networks here to make economic zones more attractive for potential locators.

DTI Undersecretary for Industry Development and Trade Promotion Group Ceferino S. Rodolfo said the bill, particularly the version approved by the House, provides for a 50% additional deduction on the increment of domestic input expense incurred in the taxable year — provided that the inputs are directly related to and actually used in the registered export activity.

“Para samin, its importance is core. Gusto namin mawawala nationality bias and export bias and… (For us the importance of the bill is core. Se want to remove nationality bias and export bias) encourage behavior to develop local supplier base, (which) is very important,” Mr. Rodolfo told reporters in Makati City last week.

Mr. Rodolfo noted the Philippine Economic Zone Authority’s export performance in the past three years, where for every $1 worth of goods exporter-locators ship out, only $0.25 derives from local value added activity.

“Ibig sabihin $0.75 iniimport natin. Ano yung $0.25, labor cost lang halos yun eh. Imagine if yung $0.75 na yun madevelop mo pa na maging locally sourced… Malaki yung multiplier (What this means is that the $0.75 represents the value of the imports. The $0.25 was just the labor cost. Imagine how that will change if we develop local sourcing (of parts). The multiplier effect will be huge),” he added.

The House version of the TRABAHO bill allows the use of this incentive for only five years. Mr. Rodolfo is hoping to have discussions on extending the use of the incentive.

The DTI recognizes that the country’s lack of raw materials and parts sourcing networks represents a major gap in boosting the country’s contribution to the global value chain.

“Currently, many of our industries are performing low-value, back-end processes in the value chain (for instance, legacy products and activities like assembly, process, testing electronics) and to be able to upgrade and move up in the value chain, we need to grow our domestic supply of raw materials, parts, and components similar to what successful manufacturing countries like Thailand and China, and now Vietnam (which has already overtaken the Philippines) have done,” the DTI has said in a leaked document which showed the agency’s negotiating point for the TRABAHO Bill.

The report said the country’s lack of components can be addressed by offering incentives, which “have an important part to play in addressing the issue of missing markets.”

“Without addressing the market failure, the Philippines might not be able to grow and develop new and high value-added exports which put the country at risk of incurring higher trade deficits in the near future,” it added.

Data from the Philippine Statistics Authority show that the country posted in 2018 a record trade deficit of $41.440 billion, which the central bank projects to widen this year.

Semiconductor and Electronics Industries in the Philippines Foundation, Inc. President Danilo C. Lachica said the industry has much to do in local sourcing.

“One of the knocks against our electronics industry is, on one hand, we are the biggest dollar generator, but on the other hand we’re also the biggest dollar exporter. We have to import a lot of materials,” Mr. Lachica said in a briefing last month.

Although electronics account for over half of the country’s exports by value, the industry’s imports make up about a quarter of total imports by value. Mr. Lachica cited as one of the big factors behind this as the high use of power in wafer fabrication.

SEIPI said it has launched an “aggressive” parts localization program, to bring small and medium enterprises into the supply chain,” Mr. Lachica said.

“We will match them with local companies if they have products that can be supplied.”

Part of the program is also growing the supplier network, most of which are concentrated in the Calabarzon region where 70% of SEIPI members are located. Mr. Lachica said the association has secured initial deals with electronics suppliers based in Mindanao. — Janina C. Lim