THE Philippine Economic Zone Authority (PEZA) said semiconductor industry investors are considered strong candidates for being classified into the top tier of fiscal-incentive recipients.
“For strategic, high-value and high-tech semiconductor manufacturing and services-related activities, the government may consider granting outright Tier 3 incentives — instead of the usual Tier 1 or Tier 2,” PEZA Director-General Tereso O. Panga said via Viber.
President Ferdinand R. Marcos, Jr. said last week that his government is considering inserting a special provision favoring semiconductor companies in the Implementing Rules and Regulations (IRR) of Republic Act (RA) No. 12066 also known as the CREATE MORE Act.
Mr. Marcos signed the CREATE MORE Act in December. The interim IRR was released last month.
Tier 3 investors, according to the interim IRR, are export enterprises approved by the Foreign Investment Review Board (FIRB), eligible for a six-year income tax holiday (ITH) plus 20 years of an enhanced deduction rate (EDR) regime or special corporate income tax (SCIT), or 26 years of EDR/SCIT if they are in Metro Manila.
The corresponding incentives are a seven-year ITH followed by 20 years of EDR/SCIT, or 27 years of EDR/SCIT if they are in metropolitan areas adjacent to the National Capital Region; and a seven-year ITH plus 20 years of EDR or SCIT, or 27 years of EDR/SCIT if they are in other areas.
Domestic enterprises approved by FIRB may avail of a six-year income tax holiday (ITH) plus 20 years of EDR/SCIT, or 26 years of EDR if they are in Metro Manila; a seven-year ITH followed by 20 years of EDR, or 27 years of EDR if they are in metropolitan areas adjacent to the National Capital Region; and a seven-year ITH plus 20 years of EDR, or 27 years of EDR if they are in other areas.
Classifying chip companies into Tier 3 is expected to attract leading integrated circuit (IC) makers and printed circuit board (PCB) designers, as well as AI and robotics companies, Mr. Panga said.
“This will complement and diversify our existing strengths in Outsourced Semiconductor Assembly and Test (OSAT), and Assembly, Testing, and Packaging (ATP).”
Mr. Panga also urged the FIRB to release “as soon as possible” the guidelines that will authorize the President to grant longer ITH and SCIT periods and other incentives for highly desirable and strategic projects investing a minimum of P50 billion or those employing at least 10,000.
“This could be game changer as we leverage the ally-shoring strategy to be able to attract wafer fab and big-ticket semiconductor and other manufacturing companies that will be shifting production out of China, Mexico or Vietnam in light of President Trump’s policy shifts to reduce the US trade deficit and to de-risk the global supply chain,” he said.
The President brought up with the Private Sector Advisory Council-Education and Jobs Sector Group last week the absence of a specific provision on incentives for the semiconductor companies in the CREATE MORE law, while detailing incentives for industries like car manufacturing.
“We’ll do it through the IRR, perhaps. Because it took us such a while to get the CREATE MORE in the first place,” Mr. Marcos said at the meeting, according to a statement released by his office.
Mr. Marcos signaled possible incentives for semiconductor locators after US President Donald J. Trump took office on Jan. 20.
The US and the Philippines under then President Joseph R. Biden committed to boosting their semiconductor partnership, particularly under the provisions of the US CHIPS Act.
“We support the President’s push for the grant of specific incentives to accelerate growth and expansion of the semiconductor and electronics industry,” Mr. Panga said.
“This can be addressed within the framework of the CREATE & CREATE More laws, including the Strategic Investment Priority Plan (SIPP).”
He said the FIRB is currently drafting the CREATE More IRR in consultation with the investment promotion agencies (IPAs).
Electronics is the single biggest export of the Philippines, accounting for nearly 60% of merchandise exports. The bulk of these exports are finished semiconductor products that are incorporated into electronic devices.
Semiconductor exports fell 33.1% to $1.91 billion in November, amid soft global demand.
Semiconductor locators have been “one of the long-term and consistent investors” in PEZA economic zones, and account for 15% of gross domestic product, Mr. Panga said.
He said PEZA also accounts for 56% of the country’s commodity exports, “the biggest of which come from the semiconductor and electronics sector.” — Kyle Aristophere T. Atienza