Changes Under CREATE Act Causes Philippines to Lose $3 Billion in Investments

The Philippines lost over $3 billion worth of potential investments in the electronics manufacturing sector, particularly due to investor concerns about the rationalization of incentives. The lost investments have since been diverted to other countries, according to the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI).

SEIPI president Dan Lachica said five companies have decided to devote their $3.6 billion worth of investments to Vietnam, Thailand, and China instead of the Philippines. “This is $3.6 billion, 25,000 workers that we could have had,” Lachica said. The companies decided to invest in other countries due to the changes made to the grant of incentives under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which were altered to become performance-based, targeted, time-bound, and transparent.

Exporters qualified under the CREATE Act will be able to enjoy four to seven years of income tax holidays (ITH), followed by 10 years of  5% special corporate income tax or enhanced deductions under the law. On the other hand, domestic enterprises will be able to enjoy four to seven years of ITH to be followed by five years of enhanced deductions.

Further concerns were raised by Lachica regarding the changes in terms of approval of incentives. Under the Act, the interagency Fiscal Incentives Review Board (FIRB) oversees the grant of incentives for projects with more than P1 billion investments. Investment promotion agencies like PEZA clear those below the threshold.  “FIRB basically has reduced the effectiveness of PEZA,” Lachica furthered, noting that the SEIPI is coming up with suggestions on legislative changes for the next administration to address industry concerns.

Source: PhilStar