INVESTMENTS into the country’s top export industry have declined nearly 24 percent after the first five months, as semiconductor firms remain uncertain about expanding operations in the Philippines over the government’s plan to rationalize tax incentives.
According to the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi), capital inflow to the industry from January to May slowed 23.6 percent to P5.47 billion, from P7.16 billion in the same period last year. This reflected the overall declining registrations of new projects and expansions to the Philippine Economic Zone Authority (Peza).
In the same period, investments in Peza crashed 26.03 percent to P43.22 billion, from P58.43 billion, on negative sentiment from foreign investors.
Investments from local firms in the five-month span fell nearly 15 percent to P25.53 billion, from P29.96 billion during the same period in 2018. However, the bigger decline came from foreign firms at 37.87 percent to P17.68 billion, from P28.46 billion.
“Uncertainties in tax policy are seen to have affected the investment climate in 2018, resulting in the withholding of expansion plans, or the eventual transfer of investments to other countries,” Seipi said in a report on Thursday.
With slower investment inflow, the country’s leading exporter is suffering from flat growth this year based on records from the Philippine Statistics Authority (PSA). Shipments of electronic products from January to May grew flat at $16.83 billion, from $16.78 billion during the same period last year.
In spite of this, electronic items still accounted for nearly 60 percent of the country’s exports as of May amounting to $28.1 billion.
‘Junk tax perks tweaking’
As such, semiconductor firms are asking the government to junk its plan of rationalizing the country’s incentive regime, as proposed under the Tax Reform for Attracting Better and High Quality Opportunities (Trabaho) bill in the 17th Congress, to remove uncertainties. They argued the bill was the main reason investments in economic zones are declining.
They are also willing to raise from 5 percent to 7 percent the tax on gross income that ecozone locators are paying in lieu of all local and national taxes, just to keep this incentive.
“[The] Seipi supports the overall objectives of the tax reform. However, we maintain our position that amending tax incentives will adversely impact the investment climate, including decisions to expand or assign production to offshore facilities,” Seipi said.
On top of keeping the tax on gross income perk, semiconductor firms are asking to retain the autonomy of the Peza, whose one-stop shop they described as “instrumental” in attracting investors, and to maintain exemptions on taxes and duties on importations of capital gear and spare parts.
The Seipi is just one of several industry coalitions demanding that government carry on with the plan to reduce corporate income tax to 20 percent, from 30 percent. However, they are hoping such move will not be at the expense of incentives economic zone firms are enjoying at present.
In spite of opposition from the business community, members of the 18th Congress are determined to pass the remaining tax packages of the Duterte administration, including the Corporate Income Tax and Incentives Reform Act (Citira)—the substitute version to the Trabaho bill—filed by Albay Rep. Joey S. Salceda.
Members of the House of Representatives agreed to conduct only one committee hearing for measures passed on third reading in the previous Congress. This means the Citira, as the substitute measure to the Trabaho bill, will undergo only one committee deliberation for it to be up for plenary discussion. Salceda believes passage of the Citira will remove uncertainties brought about by the Trabaho bill and, thus, should help arrest the declining capital inflow to the Peza.