Electronics makers warn of exit on CREATE impact

MANILA, Philippines — The country’s electronics sector has warned of sinking into manufacturing low-value products once investors pack up due to the surrender of their tax perks as mandated by a new fiscal law.

Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI) president Danilo Lachica yesterday said some chips assemblers may leave the country in about 10 years due to the impact of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act on their operations.

The CREATE Act slashes the corporate income tax from 30 percent to 25 percent but requires exporters to surrender their fiscal incentives within 10 years.

“While CREATE was passed into a law to reduce corporate income tax, there are still concerns on its long-term effects on the incentives rationalization. The operating costs in the Philippines is still quite high compared to Vietnam and Thailand,” Lachica said in the Senate hearing.

He said while manufacturers would maintain their operations here for the time being, they could eventually move out upon giving up their incentives.

“We will continue to operate and we won’t see a mass exodus of the electronic companies, but given the attractive incentives and the lower operating costs of Vietnam, Thailand, Malaysia and Indonesia, the concern really is we will be stuck with legacy products,” Lachica said.

“At the end of this transition period, when we are stuck with legacy products that are obsolete, you can expect a movement of several electronics companies out of the Philippines,” he added.

Legacy products refer to goods that no longer hold value in the market, such as keypad phones, which were wiped out by the innovation of smartphones.

The SEIPI chief asked the government to come up with measures that will cut the cost of doing business here. He said multinationals can transfer their production volumes from one Southeast Asian country to another, and it may be impossible to retrieve their investments in periods such as this when uncertainties run high.

“Some are going to stay here, some are going to still run with legacy products. However, we will see a significant erosion of the electronics industry,” Lachica said.

The electronics industry accounts for at least half of the country’s export total with its shipments of semiconductors, circuit boards, automotive parts, among others.

Last year, exports of electronic parts declined by nearly eight percent to $36.98 billion, from $40.02 billion in 2019, as global manufacturers wrestled with cancellation of orders from buyers hurt by the pandemic.