The Philippine electronics industry suffered an estimated $4 billion loss as of August this year mainly due to the massive supply chain disruption during the pandemic, according to the Semiconductors and Electronics Industries in the Philippines Foundation Inc. (SEIPI).
SEIPI President Dan Lachica said the huge loss was driven by global supply chain disruption and volume transfers made by companies to their other sites overseas.
Of the estimated $4 billion loss, Lachica said this include $500 million worth of transferred volumes that may no longer be recovered.
“SEIPI requested for a moratorium on any incentives rationalization until we recover lost ground from pandemic,” said Lachica as the association supported the Philippine Economic Zone Authority (PEZA) in jointly appealing to the Senate in last ditch efforts to protect the current incentives of existing export-oriented enterprises in the country as legislator are now in the last stretch of finalizing the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill.
In a manifestation made by Senator Imee Marcos during the recent CREATE Bill deliberation, she cited of $90 million loss of the industry in July alone. On a cumulative basis, Lachica said the industry could have lost $4 billion.
“SEIPI supports PEZA’s position to retain the current incentives and separate the incentives for domestic versus export industries like electronics,” said Lachica.
Lachica made it clear that SEIPI supports CREATE’s proposed immediate reduction of Corporate Income Tax (CIT). “However, we are concerned about CREATE’s proposed incentives rationalization,” said Lachica.
The PEZA position has been to create two separate tax incentive regimes for export and domestic businesses amid the pandemic under the CREATE Bill, which aims to rationalize fiscal incentives for both export and domestic companies.
PEZA Director General Charito “Ching” Plaza on Monday as Senate deliberates the bill as a top agenda stressed “We are still in the state of calamity. Philippine economy is suffering with uncertainties that are created by the COVID-19 global crisis and the uncertainties of the CREATE bill. Passage of CREATE bill is in bad timing. Its passage is insensitive with the companies struggling to operate, keep jobs, and that contribute to keep the economy afloat. Also it will badly affect competition for new investments in our export industry.”
The PEZA Chief explained that “It is detrimental strategy to apply new tax incentives regime to export-based companies when in fact PEZA’s tax incentives is globally-competitive, tried, and tested for attracting investments that other countries try to compete with.”
“Moreover, as shown in the recent NEDA’s initial key findings from cost benefit analysis (CBA) on tax incentives from 2016 to 2018, PEZA is vindicated with the finding that its tax incentives indeed generate more investments and contribution to the economy,” she added.
CREATE bill aims to rationalize fiscal incentives uniformly both to export and domestic markets. Meanwhile, aggressively competing ASEAN neighbors had been adjusting both their fiscal and non-fiscal incentives to attract transferring companies and keep existing investors amidst the pandemic where operations of companies are volatile.
The PEZA Chief underlined that “Exporters should not be equated with domestic companies that only produce for the local market. The two are different in context. The exporters compete in a global market and face tougher competition from international competitors, while domestic market only focus on local consumers and few competitor.”
“In terms of tax incentives, it is a crucial factor for export-based investors as part of ease and cost of doing business. Investors compare tax incentives in different countries. However, PEZA’s incentives and brand of service in one-stop-shop and non-stop shop are internationally renowned already and globally-competitive. Hence, there is no need to tinker with it. When we tinker with PEZA’s tried and tested incentives that keep our investors, it threatens companies that can opt to transfer their investments abroad. They can leave and it means job losses for Filipinos,” said Plaza.
The domestic market, she said, is the one that needs to experience tax incentives and be incentivized with their market. In addition, establishing or changing their tax incentives won’t be large threat to the economy because they don’t necessarily leave the country and transfer capital,” explained Plaza.
Further explaining the special context for ecozones, the PEZA Chief said that “Ecozone investors under PEZA, Subic, Clark, AFAB and other IPAs are export-oriented and therefore must be provided special fiscal and investment incentives as they compete in the international market.”
“As efficiency-seeking investors, they consider incentives as compelling factor in their decision to locate in a certain country including cost of doing business and labor productivity. Ecozone locators in particular rely on fiscal incentives to compensate for high cost of doing business and weak supply chain in the Philippines, and so they can be viable with their export operations in the country,” she added.
“CREATE bill is more advantageous to domestic enterprises with their market or resource-seeking investments, but the bill will be detrimental to export enterprises given their efficiency-seeking investments,” Plaza said.
At the global context, ecozones and freeports worldwide compete to offer the best fiscal incentives to be able to attract FDI and generate export revenues for their government. “We are not the only game in town as we vie for FDI against our ASEAN neighbors, and where ecozones as a development strategy continue to be the trend worldwide particularly in Asia,” the PEZA Chief said.
Plaza further cited a report by the Department of Labor and Employment (DOLE) that close to 100,000 workers in the country were laid off in the first semester of 2020 due to the pandemic.” The figure is a fraction of the 4.9 million who lost their jobs in April,” said Plaza.
Despite the difficult times in COVID-19 pandemic, Plaza said that PEZA has maintained its operations of registered-companies through its balancing acts. “We should be sensitive and support also export-companies that keep the jobs of Filipinos,” said Plaza
Now, Plaza said that 80-90 percent of its 4,587 locator companies in its 408 ecozones continue to operate with implementation of strict health and safety protocols, ensuring the welfare of more than one million employees.