THE country’s top merchandise exporters are appealing to lawmakers to increase to 7 percent the gross income earned (GIE) rate instead of removing it under the proposed Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill.
The Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi) made its appeal on Thursday as the GIE—which is paid by economic zone locators in lieu of local and national taxes —is on the brink of being rationalized under the Trabaho bill.
The Seipi instead proposed that the GIE rate be raised to as much as 7 percent, from 5 percent. On top of that, Seipi said the Philippine Economic Zone Authority has to maintain its autonomy if the Trabaho measure is enacted into law. It also moved that value-added tax exemption be given to indirect exporters, or those that supply capital inputs to exporters.
The semiconductor industry, the country’s top merchandise exporter, is strongly opposed to key provisions of the Trabaho bill, especially those that refer to incentives rationalization. In an earlier interview with the BusinessMirror, Seipi President Danilo C. Lachica said the industry may be forced to trim its work force by 140,000 under the Trabaho regime.
Investments inflow
Nonetheless, Seipi claimed the industry will continue to be a top performer even if the fiscal measure is passed, as the bill will most likely affect investments inflow, not growth.
“We are still forecasting our growth for next year. What would really be affected will be the investments. In fact, most of us already expressed what our headquarters have said—not to expand,” Seipi Chairman Melba A. Cuyahon said in an interview with reporters.
Lachica, on the other hand, said lost investments due to uncertainties over taxes and incentives have now amounted to more than $1 billion for the industry alone. “Our estimate is over a billion dollars,” he replied, when sought how much the country has lost due to the looming rationalization of tax incentives.
The industry is targeting to expand by 6 percent this year to about $35 billion in export receipts, following a record-high $32.7 billion last year. Electronics exports account for more than half of the country’s export pie.
“Right now, it is wait and see. It is business as usual. When we end the year and say that we established another record at $35 billion, what you probably will hear is, there is no concern with [the Trabaho bill]. However, there is, because this is momentum from the previous year, but it could have been higher in terms of expansions,” Lachica argued.
“It won’t necessarily show in 2019, but if the tax reform is implemented the way it is phrased today without considering our suggestions, then we will definitely be seeing an impact, an erosion on the electronics industry—not just on investments, but also on employment,” he added.
The Trabaho bill will gradually cut down corporate income tax to 20 percent in 2029, from 30 percent. On the other hand, it will rationalize and limit the menu of incentives granted by the government to firms in economic zones.