MANILA, Philippines — The Semiconductor and Electronics Industries in the Philippines Inc. (SEIPI) is pushing for the implementation of a higher tax rate of six to seven percent on gross income earned (GIE) to replace the 18 percent tax rate for eligible companies under the government’s second package of tax reform.
“We’re open to increasing the GIE from five percent to six to seven percent range because we also understand the role of our member companies as corporate citizens to support the government’s initiative. We understand what the government is doing to improve the infrastructure,” SEIPI president Dan Lachica said in a press conference.
He said many of SEIPI members operating in economic zones are registered with the Philippine Economic Zone Authority (PEZA) and pay the five percent tax on GIE in lieu of all taxes.
Under the five percent tax on GIE regime, two percent of the tax paid is remitted to the local government.
With the tax remitted to the local government, companies do not have to deal with individual local government units under the GIE regime.
“We’d like to maintain the autonomy of PEZA because it’s a formula that has worked for investments,” Lachica said.
The Tax Reform for Acceleration and Inclusion (TRAIN) 2 or Tax Reform for Attracting Better and Higher Quality Opportunities (TRABAHO) bill approved on third and final reading at the House of Representatives seeks to gradually reduce the corporate income tax rate to 20 percent from 30 percent at present, and rationalize fiscal incentives, including removing the GIE.
While the bill would remove the GIE, other incentives could be given to firms engaged in certain economic activities, including income tax holiday and reduced corporate income tax rate of 18 percent.
Lachica said investments of some member companies have either been put on hold or transferred to other countries amid concerns on the TRABAHO bill.
He said the group estimates over $1 billion worth of investments to be made in the country have been redirected to other countries given firms’ concerns on the planned tax reform package.
While SEIPI expects electronics exports to hit a record $35 billion this year, he said the figure could even be higher if deferred expansion plans were implemented.
“What you’ll probably hear is some people say, see, there is no concern with TRAIN 2. But there is, because this is momentum from previous year. It could have been higher in terms of expansions and it won’t necessarily show in 2019,” he said.
“If the tax reform is implemented as it is phrased today without considering our suggestions, we would definitely be seeing an impact, an erosion on electronics industry, not just investments but also employment,” he added.