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Electronics firms brace for higher tax cost

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electronics factory
AFP

ELECTRONICS companies in the country — a key driver of merchandise exports — are bracing for bigger costs once planned changes to current fiscal incentives are implemented.

“The bottom line is it was going to increase the cost for the companies on the average by about 40%,” Danilo C. Lachica, president of the The Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI), said in a press briefing in Pasay City on Wednesday.

Mr. Lachica was referring to the proposed shift of a fiscal incentive scheme for economic zone locators from the current five percent tax on gross income in lieu of all other national and local taxes to a 15% tax on net income for five years as proposed by the Department of Finance.

The proposal forms part of the second tax reform package that also removes tax incentives deemed redundant and slashes the regular corporate income tax rate to 20-25% from 30% currently.

SEIPI has proposed a preferential rate of 10%, inclusive of local business and real property taxes.

The industry group projects outbound shipments of its members increasing in value by about six percent this year. Electronics sales, which made up 56.07% of total merchandise exports as of April, increased by 3.3% to $11.749 billion in that period from $11.378 billion in 2017’s comparable four months.

“It’s going to be additional cost but it’s a cost that our member-companies will and are willing to live with because we understand the role of corporate citizens to pay for, you know, the use of infrastructure the government is building for our country,” Mr. Lachica said, referring to SEIPI’s 10% proposal.

Richard Cohen, SEIPI board member and vice-president of chip-maker Maxim Philippine Operating Corp., said fiscal incentives are an “important aspect” of the company’s plans, adding that “uncertainties” have led to the Philippines losing to Thailand a $100-million expansion program by its California-based parent Maxim Integrated.

“Last year we had a choice. And the choice went to Thailand… it should be here. Look at all the companies that are here, the talents that are here. It should be here,” Mr. Cohen told BusinessWorld.

Kosei Koba, president and chief executive officer of Ibiden Philippines, Inc., said its parent company in Japan has approved a $60-70 million three-year program to expand its Batangas plant.

However, he said, “[t]hat is based on the current incentive.”

“In the future we may consider the additional investment… [But] again we have to consider the investment stability, how is the cashflow.”

CHANCES GOOD
Wednesday also saw think-tank Action for Economic Reforms (AER) saying that there is a good chance for fiscal incentives reform to hurdle Congress.

“We think that the chances are highest now than ever,” AER Industrial Policy Coordinator Jenina Joy Chavez said in a separate press briefing.

She said that moves to streamline fiscal incentives began in the 10th Congress but had always floundered on differences between the Finance department (DoF), which was focused on increasing tax collections, and the Trade and Investments department (DTI), which focused on making the country more attractive to foreign investors.

“DoF and DTI are now united,” she noted.

“You can find the convergence of the essential reforms that — for both the government departments and the major [business] chambers — it’s just the question of working that compromise.”

Ms. Chavez added that now would be an “opportune time” to push the reform given the availability of relevant data after the enactment of the Tax Incentives Management and Transparency Act.

Another concern raised by industry, however, is that the changes in corporate tax structure will be implemented even if existing incentives form part of contracts with investors, AER noted. — Janina C. Lim and Elijah Joseph C. Tubayan