The umbrella group of Philippine electronics exporters is backing a call to exempt current investments in Philippine Economic Zone Authority-accredited economic zones from a tax bill that seeks to rationalize the fiscal incentives system, which is feared to increase the cost of doing business in the country.
The exemption was proposed by Senate President Pro Tempore Ralph Recto, whose hometown of Lipa, Batangas, has tens of thousands of workers employed by companies in economic zones.
Danilo Lachica, president of the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi), said this was “better” than having a transition period, which was provided in the Create bill, or the Corporate Recovery and Tax Incentives for Enterprises Act.
The Create bill forms part of the Duterte administration’s tax reform package, which also seeks to cut taxes for companies outside ecozones. Lachica claimed that some companies were shutting down apparently due to the bill. “To date, one company has shut down and another is shutting down due to the uncompetitive business environment. This may be just the tip of the iceberg. We hope the Senate will heed our appeal for the preservation of jobs,” he said in a statement on Friday.
Seipi was one of 14 local and foreign business groups that had issued a joint statement, calling for a grandfather rule, which meant applying old rules to existing players and the new rules to future investments. It reminded the national government that these businesses had stayed in the Philippines despite difficult times in the past.
“These provisions (existing incentives) were introduced 25 years ago after destabilizing coups, the Pinatubo eruption, and the turnover of empty military bases at Clark and Subic when the government became serious about attracting foreign investment,” they said.
“To attract investors, after the initial income tax holiday incentive expired, a 5 [percent] gross income earned tax [in lieu of local and national taxes] would apply. Investors were told this rate would continue indefinitely, and they believed the government,” the groups said.
“But today, the government talks about imaginary ‘lost revenue,’ and seems unhappy that the firms have been profitable and have expanded operations in the country. They (some government officials) are likewise insisting that companies will invest regardless of incentives,” they said.
Lachica reiterated a similar sentiment on Friday, noting that multinational companies (MNCs) were more likely to expand where it was cheaper to do business. The Philippines does not have incentives that are at par with those of its neighbors in the Association of Southeast Asian Nations (Asean).
“Without competitive incentives compared to those of Vietnam and other Asean countries, there will be a small probability of business expansion in the Philippines. As such, MNC’s will more likely expand in countries offering lower operating costs and competitive, if not more attractive, incentives,” he said.
Without aggressive expansion, he said the MNCs that were still here might just continue manufacturing products until they were phased out, which could take only about five years.