Uncertainty weighs on electronics firms’ plans

Janina C. Lim | BusinessWorld | May 31, 2019

The country has lost a “billion dollars” worth of investments for chip plant expansion due to uncertainty from plans to change tax incentives, the Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) said on Thursday.

“With all these uncertainties, we talked to our members… in our estimation, we’ve lost about a billion dollars in expansion investment that have gone to other countries,” SEIPI President and Chief Executive Officer Dan C. Lachica said in a press conference, noting that some prospective investments even went instead to China, Vietnam and Thailand.

The lost opportunity translates to a “conservative” estimate of 10,000 jobs that could have been generated, Mr. Lachica said.

The group is now seeking to have a dialogue with the new set of senators voted last May 13, as well as incumbent ones whose terms will end with President Rodrigo R. Duterte in mid-2022.

The Department of Finance had designed this tax reform package to consist of a gradual cut in corporate income tax (CIT) rate to 20% in 2029 from 30% currently, the highest in Southeast Asia, as well as streamlining of tax incentives that includes removal of those deemed redundant that have been depriving the government of hundreds of billions of pesos in foregone revenues yearly.

While most senators favor the CIT cut, many have reservations on the plan to streamline incentives.

The proposed change in incentives includes removal of the five percent special tax rate on gross income earned (GIE) availed of by economic zone locators — which include many semiconductor manufacturers — after the end of their four-to-eight year income tax holiday period in lieu of the regular 30% CIT and all other national and local taxes.

SEIPI has proposed that the GIE rate just be increased to seven percent instead of this incentive being scrapped altogether.

“A two percentage point increase in GIE translates to about 40% increase in cost. So that 40% they (semiconductor manufacturers) are willing to contribute because, you know, you gotta source [the funds for] the [government’s] ‘Build Build Build’ [infrastructure development program] somewhere,” Mr. Lachica said.

“We’re willing to do our part.”

Moreover, imposing the regular CIT instead of the GIE tax will entail “on the average about 60-80%… increase in operating cost.”

The group said it has not adjusted its 0-3% export growth target for this year, which is lower than its 5-6% target for 2018.Economists have cited electronics as a major casualty in simmering trade tensions between the world’s two biggest economies, the United States and China.

At the same time, Mr. Lachica noted that some subsectors that have started to pick up like medicals, industrials and automotive.

“But just on the semiconductors side… Maybe the first half was a little bit challenging but we’re seeing very positive signs for the second half,” SEIPI board member Vincent Abella said.

Latest state data show overseas sales of electronic products, which accounted for 53.98% of merchandise exports, dipped 1.7% to $8.841 billion last quarter, while semiconductors sales, which contributed 72% to total foreign sales of electronic products and 38.87% of total merchandise exports in the same period, dropped 2.8% year-on-year to $6.636 billion.

Overseas sales of electronic products grew 2.8% to $37.569 billion in 2018, accounting for 55.67% of total merchandise sales that year, while semiconductor shipments — which contributed 73.75% to overseas electronics sales and 41.06% to total merchandise exports — edged up 1.2% to $27.707 billion.

Source: https://www.bworldonline.com/uncertainty-weighs-on-electronics-firms-plans/