THE irony is real—and could be costly. The government’s second tax-reform measure, dubbed the Trabaho bill in the House of Representatives version, will force the semiconductor industry to lay off 140,000 workers once fiscal incentives are rationalized.
This is according to Danilo C. Lachica, president of the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi). He added several multinationals are now locating their expansions outside the country, largely due to the uncertainty of keeping their tax incentives here.
In defense of the government, Trade Secretary Ramon M. Lopez stood firm that the Trabaho bill will not result in job losses, as several reform programs of this administration apparently make the country a preferred investment site.
“We agree with the reduction of corporate income tax. However, with the current [Trabaho bill] version on the rationalization of incentives, I am concerned about the real possibility of multinationals eventually moving out of the Philippines,” Lachica told the BusinessMirror.
“As it is, there have been companies who have made decisions to expand outside the Philippines because of the uncertainties with the incentives they have been given. The life blood of the electronics industry is in new products, which would prevent obsolescence and eventual ramp-down, if not shutdown, of the company and the collateral loss of jobs,”
The Trabaho bill, or the Tax Reform for Attracting Better and High-quality Opportunities, is the second package of this administration’s fiscal reform program. On one end, it will bring down corporate-income tax to 25 percent from 30 percent, and on the other will rationalize fiscal incentives given to locators in economic zones.
Foreign chambers of commerce earlier noted that among the top locators in these eco zones are the electronics and semiconductors firms, as well as business-process outsourcing, adding that these are among the country’s biggest export revenue earners.
Estimates provided by Lachica put job losses to as many as 140,000 in the semiconductor industry.
He added it could even go beyond that figure, as this does not account for indirect jobs reliant on the industry. “The initial estimate of loss of employment by fifth year of current version of the [Trabaho bill] is up to 140,000 direct jobs, plus additional indirect jobs dependent on the industry,” Lachica said.
Need to stay competitive
The Seipi chief argued tax incentives are needed for the country to stay on a par with its Asian competitors. Apart from this, he said multinationals want the government to retain the Philippine Economic Zone Authority (Peza) as their point agency for investment needs.
“Incentives are important to remain competitive with the other Asian countries for foreign direct investments. Being mostly exporters, multinationals would also like to see that Peza remains as their one-stop shop for business needs,” Lachica explained.
The Trabaho bill will create the Fiscal Incentives Regulatory Board to be chaired by the finance chief. The proposed committee will be in charge of granting fiscal incentives to registered enterprises upon the recommendation of investment- promotion agencies.
In disputing the industry’s fears, Trade Secretary Ramon M. Lopez told the BusinessMirror, “It is not certain that it will lead to job losses, but we shall continue to attract potential investors even under the proposed set of incentives, which are enhanced, modernized, made more performance-based and time-bound.”
He added: “The lowering of the corporate income-tax rate, as well as the recognized robust growth momentum and strong macroeconomic fundamentals of the country today and the other liberalization and reform measures, including the aggressive infrastructure development program, continue to make our country a preferred investment destination.”
Lopez also argued that the rationalization of fiscal incentives will compel firms to become more efficient. “The provisions in the bill are still being deliberated, and I believe that the final structure is one that will support more strategic, innovative and performance-oriented companies,” he explained.
The semiconductor industry is the country’s top-performing export sector, accounting for more than half of the Philippine merchandise export pie. Last year electronics exports grew an all-time-high 11 percent to $32.7 billion, from $29.4 billion in 2016.
The semiconductor industry also employs an estimated 3.2 million direct and indirect workers.