Electronic exporters see modest growth until 2020

MANILA, Philippines — Electronic exporters expect to post flat to slight growth this year and next amid risks such as ongoing trade tension between the US and China, as well government’s proposed rationalization of fiscal incentives.

Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI) president Dan Lachica said the country’s electronic exports are expected to end the year with flat to three percent growth from last year.

Data from the Philippine Statistics Authority (PSA) showed the country’s electronic product exports increased 2.8 percent to $37.57 billion last year from $36.54 billion in 2017.

Latest available PSA data showed electronic exports rose 2.7 percent to $33.20 billion in the January to October period from $32.34 billion in the same period last year.

For next year, Lachica said electronic exports are seen to grow at the same pace as this year.

“It’s going to be very challenging (next year),” he said, citing risks to the sector.

In the global market, he said the trade war or imposition of tariffs by the US and China on each other’s goods, continues to pose risks to the electronics industry.

“From an industry perspective, it’s not very big but the concern is, as the trade war escalates, we could see greater effect,” he said.

The Philippines could be affected by the trade war as semiconductors, which go to different products including consumer goods, account for the biggest share in electronic product exports.

“If we see an escalating trade war, we might see an impact on consumer products,” Lachica said.

Locally, he said the proposed Comprehensive Income Tax and Incentives Rationalization Act (CITIRA) remains a concern of firms in the electronics industry.

CITIRA, which has been approved at the House of Representatives on third and final reading, seeks to bring down the corporate income tax rate gradually to 20 percent from 30 percent, and rationalize fiscal incentives.

Part of the changes in the incentives regime is the removal of the five percent tax on gross income earned (GIE) paid by firms registered with the Philippine Economic Zone Authority (PEZA) in lieu of all national and local taxes after the end of the income tax holiday period.

There are SEIPI members operating in PEZA zones that enjoy the five percent GIE benefit.

As the Senate is coming up with its own version of the CITIRA bill, Lachica said the group is hopeful their concerns on the proposed measure would be addressed.

“I really hope we would still respect grandfather for existing locators. And I really hope the enhancements in incentives will offset our disadvantage in terms of the high operating costs in the Philippines,” he said.

Power cost in the Philippines is estimated to be around 40 percent higher than in other countries in the Southeast Asian region.

In terms of labor costs, the Philippines is 28 percent higher than the average in the Southeast Asian region.

“I think, if you want to get foreign direct investment and continue to enhance our manufacturing industry, we would need help in offsetting those operating costs,” Lachica said.

If the approved CITIRA is unable to address concerns raised by SEIPI, the group estimates 50 percent job losses or 38,000 per year from 2022 to 2026 in the industry.