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CREATE may dim prospects for electronics industry

Electronics exports are expected to decline by 5% this year. — REUTERS

THE electronics exports industry is pessimistic about the longer-term growth prospects of the sector, once the measure rationalizing tax incentives is signed into law.

“I’m not optimistic after the transition period that we will be able to engage expansion investments, let alone new investments,” Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) President Danilo C. Lachica said at the Arangkada online forum on Tuesday.

The Senate last week approved Senate Bill No. 1357, or the “Corporate Recovery and Tax Incentives for Enterprises Act (CREATE),” on third and final reading. Once signed into law, the bill will immediately lower the corporate income tax (CIT) to 25% from the current 30% rate and rationalize tax incentives for investors.

The Finance department had been pushing to make tax incentives performance-based and time-bound, noting the country has been giving some investors the special rate of 5% on gross income earned (GIE) in lieu of all taxes with no time limit.

Under CREATE, exporters and domestic industries will now be given between four to seven years of income tax holiday. Exporters and critical domestic industries may later pay the 5% on GIE for 10 years in lieu of all local and national taxes. The bill also increased the sunset provisions to 10 years from the initial proposal of 4-9 years.

Mr. Lachica said that without new investments for the production of new electronic products, current production would soon become obsolete.

“After the next 10-year transition period, if we don’t attract investments or expansions or even new investments in the industry — the nature of the industry is that with expansion, come new products and these new products obviously cater to the new devices, the hardware to support the technology trends,” he said.

“If you don’t bring in those new products with new investments, then there will come a time that the companies here will be running what we call legacy products, which will eventually be obsolete.”

At the start of the lockdown, Mr. Lachica said the industry lost up to 15% of their production volume, because multinational companies transferred production to other facilities in Asia.

SEIPI expects electronics exports to decline by 5% this year, better than the earlier forecast of a 15% decline after industrial, consumer, mobility, and medical electronics demand spiked.

The industry at the time said that it expected 7% growth next year. But Mr. Lachica in a mobile message on Tuesday said that the industry will retain the 7% projection despite the approval of CREATE.

“We may not see immediate fallout next year,” he said. 

To attract foreign investments, Mr. Lachica said that the Philippines must enhance incentives, improve infrastructure, reduce red tape, allow more foreign ownership of companies, and support local supply chain development. — Jenina P.Ibañez

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