Electronics sector urges government to address high operation costs

MANILA, Philippines — While electronic firms are still urging the government to study the effect of the incentives rationalization in the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), they are also asking the government to address the high operating costs that makes the country less attractive to potential investors.

“I guess, at least from the electronics industry perspective, the appeal still is to study the effect of the incentives rationalization and figure out why we’re still not getting as much  foreign direct investments compared to Thailand or Malaysia,” Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI) president Dan Lachica told reporters in an interview.

He said the Philippines has high operating costs particularly in power, labor, and logistics.

“The reality is that we still have high operating costs. And so I realized that we can’t reverse what was done in terms of the incentives rationalization, but we really need to solve this problem, otherwise, we’re still talking about maybe just getting 17 to 20 percent of what ASEAN competitors are getting. We need to resolve that,” Lachica said.

He said that while the local industry is still getting some investments, it is not as high as what its ASEAN neighbors are getting.

“And the problem with electronics is we depend on new products and technologies. Made from the perspective of the CEO of a multinational, they will operate in a country where the operating cost is at its lowest,” Lachicha said.

“And since they have sites in different countries outside the Philippines, they can compare the numbers. And so if you have high operating costs, if you have high power costs, for example, and if you don’t have some measures to mitigate that with incentives, then where do you think the CEO will place these new products?,” he added.

The SEIPI official stressed that if the industry is unable to get investments for new products, it will continue to run on legacy products.

“And the industry that you see today, the $49 billion in 2022, three million direct and indirect workers, it’s not going to be the same. I mean, the clock is running. We have eight and a half years  or so for the transition period,” Lachica said referring to the transition period for the CREATE.

“We’re already seeing some signs like I said, expansion projects are not coming here. Investments are not the same as we’d like. So that’s a big threat to the industry,” he added.

Under the CREATE, changes were made to the grant of incentives to make these performance-based, targeted, time-bound, and transparent.

Qualified exporters will be able to enjoy four to seven years of income tax holidays, followed by 10 years of five percent special corporate income tax or enhanced deductions under the law, while domestic enterprises will be able to enjoy four to seven years of ITH to be followed by five years of enhanced deductions.

In relation to the high power costs, Lachica also expressed hope that the government will also implement measures that will not make it difficult for companies to leverage on those incentives that should help reduce the operating costs.

For this year, SEIPI sees a flat growth in electronics exports.

“The last quarter or so, we’ve been clobbered in terms of our electronics exports. In fact, at one point, we were 15 percent down compared to last year,”Lachica said.

Latest figures from SEIPI showed that electronics exports fell by nearly seven percent to $21.19 billion from January to June compared to last year’s $22.78 billion.