2 firms leaving PH as Senate debates CREATE bill

Published October 9, 2020, 12:56 PM

by Bernie Cahiles-Magkilat

As Senate continues to debate on the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill emotionally, two big electronics companies are shutting down operations because of uncompetitive business environment, according to the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI).

SEIPI President Dan Lachica

SEIPI President Dan Lachica refused to identify the two firms but said they are both German multinational corporations and employ around 1,000 Filipinos at their factories in Laguna and FTI in Taguig.

The first company, engaged in the manufacture of electronic lighting equipment, already shutdown its operation, while the second MNC, which will abandon its Philippine operation next year, is producing automotive electronics accessories.

 “This may be just the tip of the iceberg,” warned Lachica.

As such, the industry association has urged the Senate to heed its appeal for the grandfathering of incentives under the CREATE bill stressing the “9-year transition is not as good as grandfathering.”

“SEIPI supports Sen. Ralph Recto’s CREATE proposal for the grandfathering of current investments and retain some autonomy of the Philippine Economic Zone Authority (PEZA) and investment promotion agencies,” said Lachica.

Lachica also reiterated a study conducted by the University of Asia and the Pacific, which showed estimated direct job losses of 38,000 and 266,000 indirect jobs from the SEIPE members alone on the first year of the implementation of the Corporate Income Tax and Incentives Rationalization Act (CITIRA), the bill which was replaced by the CREATE bill.

 Overall, the CITIRA was estimated to lead to the loss of 121,000 direct and 582,000 indirect jobs a year after the removal of the current tax incentives being granted by PEZA and other government IPAs. The study said that the garment, IT-business process management, regional headquarters and electronics and semiconductor industries, which are mostly registered with PEZA, currently employ a total of 2 million direct workers, and 7.930 million indirect jobs.

As the Philippines loses its competitiveness, the UA&P study said countries like Vietnam, India and Malaysia would gain an upper hand as relocation sites for these firms.

“Without competitive incentives compared to Vietnam and other ASEAN countries, there will be a small probability for expansions in the Philippines. As such, MNC’s will more likely expand in countries offering lower operating costs and competitive, if not more attractive incentives,” said Lachica.

There will be MNC’s who will either manufacture legacy products or just run out their existing products until obsolescence, which could take 2-5 years depending on the application, after CREATE transition.

“We hope that the Senate will heed our appeal for grandfathering of incentives under CREATE in order to preserve jobs,” said Lachica.

Government efforts to modernize the country’s tax incentive regime to investors have not been successful due to strong lobby by industry groups and the opposition of PEZA, which administers the tax perks for export-oriented enterprises.

The most recent move to overhaul the country’s tax incentive system was during this Duterte administration. The legislative measure has evolved overtime due to accommodate industry pleas and the ensuing pandemic challenges. It started with Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO Bill) before it was replaced by CITIRA and now the CREATE bill.