$1-billion planned investments lost due to TRAIN 2 – SEIPI

By Bernie Cahiles-Magkilat

The Semiconductor, Electronics Industry of the Philippines, Inc. (SEIPI) said the country has lost $1 billion in estimated potential investments and 10,000 new jobs as a result of the uncertainty created by the government’s tax reform program that seeks to overhaul the investors’ tax incentives system even as the group warned of long term impact on the country’s attractiveness as an investment destination should the current version of the bill is passed into law.

Semiconductor and Electronics Industries Foundation, Inc. logo (Courtesy of seipi.org.ph) Semiconductor and Electronics Industries Foundation, Inc. logo (Courtesy of seipi.org.ph)

In a press conference at the opening of the 16th Philippine Semiconductor & Electronics Conference and Exhibition at the SMX Convention Center, industry officials of SEIPI said this is the best time to invest in the electronics sector because most industries are driven by technology, which is powered by electronics parts some of which are produced in the country.

SEIPI President Dan Lachica said that based on their estimates some $1 billion in potential investments with potential 10,000 new jobs have been lost in the past one and a half years due to the TRAIN 2 uncertainty. These investments went to Thailand, Vietnam, and China, he said.

Lachica even said that among the factors – overall global slowdown in electronics industry and trade war – that have been slowing down the growth in the country’s electronics exports, the government’s second package of the government tax reform program is the more worrisome.

Lachica noted that TRAIN 2 bill is the most worrisome because it has more long-term impact. He explained that the domestic industry is more sensitive to global factors including dip in demand in electronics products but these are short term to mid-term concerns.

“The long term though is our concern,” he said. He pointed out that if expansion of projects are aborted and these are the new products and technologies then electronics factories have to shutdown because these new products are the lifeblood of electronics factories.

“Our factories are still running because they are still doing the existing products but certain sectors can change quickly like mobile phones change their models within a year,” he explained adding that product certifications are also valid for a short period of time and products become obsolete quickly.

“I am not predicting gloom and doom but we are looking at what the root cause would be if we do not get a reasonable version of the TRAIN 2 bill,” he said noting that eventually local production will dwindle. In the short term, he said, it would be okay but it will have a long-term effect.

Lachica even refused to call the bill TRABAHO Bill but TRAIN 2.

“I will not call it ‘trabaho’ bill because I feel jobs could be lost when implemented the way it is today,” he said.

The country’s electronics exports suffered a decline in the first quarter this year by 1.6 percent because semiconductor, which account for 65 percent of total electronics exports declined.

Exports of semiconductors declined by $185 million or 2.82 from January to March this year but control and instrumentation increased by $58.7 million or 35.6 percent due to several factors including the overall global slowdown in electronics industry and the trade war between the US and China.

SEIPI Chairman Glenn Everett said that this is the best time to invest in the electronics industry.

“It is an amazing time to the electronics industry because the growth fundamentally is huge in the world and the trend is now the reality like automation, IOT and AI, we’re seeing great growth potential in the future, great future in front of us and our company,” said Everett, who is also general manager of Continental-Temic Electronics (Phils.) Inc.

Vincent Abella, CEO of the Automated Technology (Phil.) Inc., said that SEIPI is still waiting and making recommendations to achieve a win-win solution for both the government and the industry.

Part of the SEIPI recommendations is they already amenable to higher gross income earned (GIE) tax of 7 percent from the current 5 percent if they have to lose some of the incentives like the income tax holiday.

The higher 7 percent GIE though, Lachica said, would raise a SEIPI company’s cost by 40 percent, but the higher government tax collection would help fund the government’s Build Build Build program.

If SEIPI members would transition to corporate income tax incentives (CIT) than the income tax holiday regime, Lachica said the proposal is to raise the 5 GIE to 7 percent and 18 percent net CIT.

On the average, this scenario would increase the operating cost for electronics industry would increase by 60-80 percent or an average of 70 percent depending on the company.