Tax plan seen causing 700,000 job losses

Foreign businessmen on Tuesday warned that more than 700,000 jobs would be lost in a single year if the government pushes through with the plan to rationalize the tax perks that investors enjoy, even as the Department of Finance (DOF) claimed up to 1.6 million new employment would be created by the lower corporate income taxes and enhanced incentives under the same measure.

Representing the Joint Foreign Chambers of the Philippines, John D. Forbes of the American Chamber of Commerce of the Philippines told the Senate committee on ways and means hearing on the proposed Corporate Income Tax Incentives Reform Act (Citira) that the country’s existing fiscal incentives regime was compensating for the high costs of investing here—which made the Philippines the laggard in the region in attracting foreign direct investment (FDI) even as inflows to Asean were already outpacing those entering China.

If those sweetener tax incentives will be reduced under Citira, Forbes said the JFC projected losses of 121,000 direct jobs in the first year alone, on top of 582,000 in indirect employment.

On the other hand, retaining the current tax perks will sustain a 5 to 10 percent annual increase in jobs, Forbes said, citing JFC estimates.

That would translate to 1 to 2 million direct and 4 to 8 million indirect jobs generated in the next 10 years, Forbes added.

Semiconductor and Electronics Industries in the Philippines Inc. (Seipi) president Dan C. Lachica, representing the country’s biggest merchandise export sector, claimed Citira could shed up to 387,000 jobs in the electronics industry.

“We estimate 50 percent of electronics companies will leave the Philippines between 2022 and 2026,” Lachica said, adding that such decision would be a result of the obsolescence of parts in the domestic supply chain.

“Several companies are formulating exit plans already,” Lachica added.

Trade Secretary Ramon M. Lopez told the Senate panel that “definitely, if we adopt the [House-approved version of the] bill, there is that potential risk” of job losses.

Hence, Lopez was seeking to prolong the transition period from the present incentives system to the proposed new one by 5 to 10 years instead of just 2 to 5 years to “soften the landing.”

He said the longer transition period would “manage the big risk in job losses,” admitting that there “will not be a zero risk” to jobs if Citira is implemented.

Lopez also pointed out that lowering the corporate income tax rate from 30 percent at present—the highest in Asean—to about 20 percent under Citira would “attract investment and SME (small and medium enterprises) startups” moving forward.

Finance Undersecretary Karl Kendrick T. Chua, whose Department of Finance (DOF) is leading the push for Citira as part of the Duterte administration’s comprehensive tax reform program, said he was also concerned about fears of job losses as “jobs are at the highest priority of reforms.”

But Chua said Citira should be regarded as a package, unlike before when the rationalization of tax incentives had not been presented with offsetting measures to address any negative impact.

“We have the lowering of corporate income tax, the biggest incentive that will create an estimated 1.6 million jobs,” Chua said.

Also, Chua said Citira would incentivize firms that invest in training of workers as well as research and development “so we can retool and build jobs of the future.”

Chua said the DOF would consider the proposals to provide a longer adjustment period between the old regime and the proposed change in tax incentives system.

Amid different estimates of potential job losses due to Citira, Chua called on the various industry groups to submit their calculations and substantiate these data so that the DOF could crosscheck them. “It’s hard to respond accurately if there are different figures,” he said.

During the hearing, Senators Sherwin Gatchalian and Migz Zubiri also expressed concern on industries’ warnings of job displacements, saying this issue would make it hard for them to support Citira.

But committee chair Sen. Pia Cayetano said that while there was the possibility of certain industries “dying” due to corporate income taxation and fiscal incentives reform, there was “a need to look at long-term plans of the DOF and the DTI (Department of Trade and Industry) to make this [country] a better place to do business.”