Electronics Industry in Peril as Firms Transfer Due to Long-term Effects of CREATE Act

Chipmakers may choose to leave the country in about 10 years due to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which could devastate the electronics sector, said Danilo Lachica, Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI).

The primary aim of the CREATE Act is to cut down on corporate income tax from 30% to 25%, but this comes at the expense of exporters surrendering their fiscal incentives within 10 years.

“While CREATE was passed into a law to reduce corporate income tax, there are still concerns on its long-term effects on the incentives rationalization. The operating costs in the Philippines is still quite high compared to Vietnam and Thailand,” Lachica said on Wednesday in a Senate hearing.

“We will continue to operate and we won’t see a mass exodus of the electronic companies, but given the attractive incentives and the lower operating costs of Vietnam, Thailand, Malaysia and Indonesia, the concern really is we will be stuck with legacy products,” he explained further.

Legacy products can refer to a version of goods that is no longer current, losing substantial market value.

Lachica urged the government to draft more policies to slash the costs of operating within the country in hopes of mitigating multinationals, particularly electronics firms, from transferring their production volumes into other Southeast Asian countries.

“Some are going to stay here, some are going to still run with legacy products. However, we will see a significant erosion of the electronics industry,” said Lachica.

At least half of the country’s total exports come from the electronics sector including the shipping of semiconductors, circuit boards, and automotive parts. The exports of electronic parts in 2020 fell to $36.98 billion, approximately an 8% decrease, from $40.02 billion in 2019.

Source: Philstar