Foreign investors warn more than 700,000 PH jobs to disappear if tax perk review leads to incentive removal

By: Ben O. de Vera, Philippine Daily Inquirer, 24 Sep 2019

Foreign businessmen on Tuesday, Sept. 24, warned that more than 700,000 jobs would disappear in just a year if Philippine government efforts to revise a system for tax incentives led to the incentives’ removal.

The Department of Finance (DOF) claimed that up to 1.6 million new jobs would be created, though, under a proposal to lower corporate income taxes and a more rational tax incentive system.

John D. Forbes, talking for the Joint Foreign Chambers (JFC) of the Philippines, told the Senate committee on ways and means that the Philippines’ fiscal incentives were compensating for the high cost of doing business in the country and a revision that would remove these would lead to investors jumping ship.

The high cost of doing business in the Philippines had made the country a laggard in the Southeast Asian region where other countries are drawing levels of foreign direct investments (FDI) higher than China’s.

If existing tax incentives were reduced under the proposed Corporate Income Tax Incentives Reform Act, or Citira, JFC had projected at least 120,000 jobs would be lost and 582,000 in indirect employment vanishing into thin air, said Forbes, who also represents the American Chamber of Commerce (AmCham) in the Philippines.

Retaining the current tax perks would sustain a 5-10 percent annual increase in jobs, said Forbes, citing JFC numbers.

That would translate into 1-2 million direct and 4-8 million indirect jobs generated in the next 10 years, Forbes added.

Semiconductor and Electronics Industries in the Philippines Inc. (Seipi) president Dan C. Lachica, representing the country’s biggest merchandise export sector, claimed Citira may shed up to 387,000 jobs in the electronics industry.

“We estimate 50 percent of electronics companies” will leave the Philippines between 2022 and 2026, Lachica said, adding that such decision, though, would mainly be the result of obsolete parts in the local supply chain.

“Several companies are formulating exit plans” already, Lachica added.

Trade Secretary Ramon M. Lopez told the Senate panel that “definitely, if we adopt the [House-approved version of the] bill, there is that potential risk” of job losses.

Lopez was seeking to prolong the transition period from the current incentives system to the proposed new one by 5-10 years instead of just 2-5 years to “soften the landing.”

He said the longer transition period would “manage the big risk in job losses and minimize the risk,” admitting nonetheless that there “will not be a zero risk” to jobs if Citira was implemented.

Lopez also said lowering the corporate income tax rate from 30 percent at present—the highest in Asean—to about 20 percent under Citira would “attract investment and SME [small and medium enterprises] startups” in the long run.

Finance Undersecretary Karl Kendrick T. Chua, who leads the push for Citira as part of the Duterte administration’s comprehensive tax reform program, said he, too, was concerned about fears of job losses as “jobs are at the highest priority of reforms.”

But Chua said Citira should be viewed as a package, unlike before when a review of tax incentives to make these rational was not accompanied by measures to offset negative impacts.

“We have lowering of corporate income tax, the biggest incentive that will create an estimated 1.6 million jobs,” Chua said.

Also, Chua said Citira offers incentives to firms that invest in training of workers as well as research and development (R&D) “so we can retool and build jobs of the future.”

Chua said the DOF will consider proposals to stretch the adjustment period between the old regime and the proposed change in tax incentives system.

Amid different estimates of potential job losses due to Citira, Chua called on the industry groups to submit calculations and substantiate these data so that the DOF can verify the numbers. “It’s hard to respond accurately” if the figures were different, he said.

At the hearing, two senators—Sherwin Gatchalian and Migz Zubiri—appeared to be swayed by the warning on job losses, saying it was making it tougher for them to support Citira.

But Sen. Pia Cayetano, committee chair, said while it was possible some industries would be “dying” as a result, there was a “need to look at long-term plans…to make this country a better place to do business.”/tsb