Semiconductor firms on Thursday said their operating cost will increase by as much as 80 percent if they are stripped of their tax incentives under the government’s rationalization plan.

In a news briefing, Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi) President Danilo C. Lachica said industry players prefer to pay higher tax on gross income than to transition to corporate income tax (CIT). He said a shift to 18-percent reduced CIT will raise the operating cost of semiconductor firms by as high as 80 percent.

This is in contrast with a 7-percent tax on gross income, from 5 percent, that will only result in 40 percent additional cost, according to Lachica.

“The proposal today is to go from 5-percent GIE to 18-percent net CIT. That is on the average about 60 percent to 80 percent—depending on the company’s operation—increase in operating cost,” Lachica said.

Locators, including semiconductor exporters, are bound to lose their incentives under the Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill.

Specifically, economic zone firms will relinquish their 5-percent gross income earned (GIE) incentive should the Trabaho bill get approved. After which, they will be given up to five years to transition to CIT.

Semiconductor firms are in favor of raising the GIE rate to 7 percent for as long as they retain their incentives.

In anticipation of a passage, Seipi forecast shipments of electronic goods, the country’s top export products and one of the chief dollar earners, to grow flat at 3 percent this year. On top of domestic uncertainties, the industry is taking damage from the trade conflict between the United States and China, which are top buyers of Philippine electronic parts and units.

Data from the Philippine Statistics Authority (PSA) reported exports of electronic products in the first quarter declined 1.55 percent to $8.84 billion, from $8.98 billion during the same period last year.

Further, Seipi is anticipating fluctuations to take place within the year. For the rest of the year, the industry is expecting demand for semiconductors to remain flat due to the slowing appetite for smartphones.

Many existing locators have abandoned their plans to expand in the Philippines, as they can no longer wait for the final policy on corporate tax and incentives.

According to Lachica, most of them located their expansion plans to regional competitors China, Vietnam and Thailand. In total, he said these projects would have amounted to over $1 billion in investments and created 10,000 new jobs.

Image Credits: Nonie Reyes