August 1st, 2022
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) has asked the Department of Trade and Industry for a “semiconductor and electronics industry competitiveness plan” in response to the passage of the USD 280-billion Chips and Science Bill passed by the United States Congress, which incentivizes American semiconductor companies to keep production in the US, which Salceda adds “could affect our own semiconductor industry’s competitiveness in the long-term.”
“We won’t feel the bite all that much yet, because demand for semiconductors globally is skyrocketing. The peso is cheap so our semicon exports are competitive. But once these transitory conditions fade, and the investments countries make for their domestic semicon industries begin to pay off, industrial stagnation will take its bite,” Salceda said.
Electronics products, including semiconductors, are the country’s largest export, comprising 42% of total exports as of June 2022. The Philippines also exports around USD 22.6 billion of integrated circuits.
“We need to future-proof the electronics and semiconductor sector of the country. Tax incentives alone won’t cut it. Many of them prefer the gross-income-earned or GIE tax regime instead of the performance-based incentives, so in this case, tax breaks tend to pad profits rather than encourage innovation and performance,” Salceda said.
“Consistent with President Marcos’s instructions that we capitalize on the CREATE Law, we need to optimize the provision of that law which allows us to give incentives other than tax breaks.”
Salceda pointed out that the Fiscal Incentives Review Board has the power “To recommend to the President the grant of appropriate non-fiscal incentives in accordance with the Strategic Investment Priority Plan for highly desirable projects or very specific industrial activities and based on: (a) benefit-cost analysis approved by the Fiscal Incentives Review Board; and (b) containing a schedule of budgets of expenditures and sources of financing with magnitudes provisionally approved via resolution for inclusion in the upcoming National Expenditure Plans by the Development Budget Coordination Committee” under Section 297 (M) of the National Internal Revenue Code.
Salceda adds that under the CREATE Law, the Strategic Investment Priorities Plan “may contain recommendations for types of non-fiscal support needed to create high-skilled jobs to grow a local pool of enterprises, particularly micro, small and medium enterprises (MSMEs), that can supply to domestic and global value chains, to increase the sophistication of products and services that are produced and/or sourced domestically, to expand domestic supply and reduce dependence on imports, and to attract significant foreign capital or investment.”
“Right now, the SIPP is just a list. It does not even contain plans or strategies to use a combination of tax and non-tax measures to boost certain activities, including semiconductors.”
“Memorandum Order No. 61, approving the SIPP, literally is just a list of sectors and industries. So, I hope Secretary Pascual directs the creation of a more sophisticated plan, especially for our top export sector, given these global threats and developments.”
“Like inflation, in a globalized age, a lot of the threats to our industries will come from abroad. ‘Innovate or die’ is the name of the game..”
Salceda recalled that the Department of Trade and Industry under then-Secretary Ramon Lopez adopted his proposal for an interim-transitional-comprehensive approach to the SIPP.
“The IPP 2020 was supposed to be the interim document. MC 61 is supposed to be the transitional document. Secretary Pascual has it in his power to direct the initiation of the comprehensive SIPP, including non-fiscal strategies to promote our priority sectors.”
“I will also ask Secretary Diokno, who chairs the FIRB, about his thoughts on the matter during my upcoming meeting with him next week,” Salceda added.
“There are 300,000 jobs in the electronics export sector. The US Chips Bill and investments of other countries in their own electronics industries, pose real threats to these jobs. But there are also opportunities – for value-added, research partnerships, among others. We should also plan for seizing those opportunities.”