Electronics firms oppose tax shift under TRAIN 2

Electronics and semiconductor firms are willing to absorb higher operational costs expected to be brought about by the proposed second tax reform package as long as it would be minimal, the head of the industry’s umbrella organization said yesterday.

Semiconductor and Electronic Industries in the Philippines Inc. (SEIPI) president Dan Lachica said the group has expressed to the Department of Finance its opposition to the planned replacement of the five percent gross income earned (GIE) rate to a 15 percent corporate income tax (CIT) rate.

Lachica said while the proposal may be revenue generating, it will have a huge impact on operational costs, which are seen increasing by up to 40 percent.

The tax reform package also proposes that the two percent in the five percent GIE remitted to the local government unit (LGU) by ecozone locators will now be assessed based on the local government code.

This does not bode well for SEIPI as well, according to Lachica, as it will “expose our industry to inconsistencies in the local government units, which are highly political and severely unstandardized.”

“There’s a concern that we get exposed to inconsistencies, inefficiencies, different practices, and maybe to some extent, corruption,” he said.

Instead of the 15 percent CIT rate, SEIPI is proposing a tax rate of 10 percent on a graduated basis up to five years, inclusive of the local business tax and the real property tax.

“It’s still going to be additional cost, but it’s a cost that our member companies can live with,” Lachica said.

Lachica said another concern of the group is the definition of new technology and new products under the second tax reform package.

“Incentives will be given to new products, but the question is how do you define a new product. Initially the idea, is as long as it looks different. So we’re working with the government to help define what a new product is,” he said. “If expansions don’t happen here because of concerns with the tax reform, or federalism, or endo, because in the meantime, it creates some concern, we’re basically going to be stuck with legacy products. If you get stuck with legacy products over a period of time, basically there will be no more use for multinationals for that factory so its going to shut down. We don’t want that to happen,” Lachica added.

SEIPI groups 316 multinational and Filipino-owned semiconductor and electronics companies, including allied and support industries, as well as the academe.

The country’s semiconductor and electronics industry is the largest contributor to the manufacturing sector and total exports.