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Business groups warn about loss of incentives under CREATE measure

INDUSTRY ASSOCIATIONS are warning that the loss of fiscal incentives under a proposed tax reform bill could worsen employment conditions, which are already under pressure due to the coronavirus disease 2019 (COVID-19) pandemic.

Business groups last year said that the then-current version of the proposed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) could likely result in 700,000 lost jobs. The bill proposes to reduce corporate income tax while rationalizing tax incentives.

The loss of tax incentives, coupled with the slowdown caused by the pandemic, will drive unemployment numbers higher, the groups said in a virtual news conference Monday.

“The numbers I gave are pre-COVID,” Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) President Danilo C. Lachica said.

“As far as the electronics industry is concerned, it may have got worse. In fact, you know, certain government agencies don’t believe that this is real but already I’ve seen the start — the tip of the iceberg. There are two companies that have announced their shut down.”

The electronics industry recently upgraded its 2020 growth projection to a contraction of 5%, from the earlier forecast of a 15% decline, after demand for industrial, consumer, mobility, and medical electronics spiked. The industry expects 7% growth next year, “assuming favorable CREATE outcome.”

John Forbes, senior adviser to the American Chamber of Commerce of the Philippines (AMCHAM), said the lockdown had caused some companies to shift production to their other sites in Southeast Asia.

Philippine Ecozones Association (PHILEA) President Felix Francisco Zaldarriaga said the industry is seeing workforce reductions even without an outright locator exodus.

“It really doesn’t make any sense (to tamper) with the one ingredient that’s keeping these guys here,” he said. 

Mr. Lachica added that investors could stay during a transition period included in the bill.

“But what happens after? If our incentives are not going to be competitive with our neighbors, it’s open season. But the danger is, even during the transition period… there’s no guarantee that expansions (involving) new technologies and new businesses will come. That’s the risk,” he said.

The industry groups agreed that they prefer one of the options proposed by Senator Ralph G. Recto, which would distinguish export enterprises from domestic companies. After an income tax holiday period, a Special Corporate Income Tax based on gross income earned will remain in perpetuity for export enterprises under this proposal.

“We believe Senator Recto’s proposal for grandfathering incentives will ensure that existing investors will continue to invest in the country in the long term,” they said in a statement.

A study commissioned by the Labor department indicates that CREATE will increase jobs and reduce poverty by improving foreign direct investment and reducing the prices of consumer goods.

The industry groups represented in the news conference include SEIPI, PHILEA, the Information Technology and Business Process Association of the Philippines, AMCHAM, the Confederation of Wearable Exporters of the Philippines, and Philippine Association of Multinational Companies Regional Headquarters, Inc. — Jenina P. Ibañez

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