By Elijah Felice Rosales, March 13 2019; Business Mirror
Image Credit to AIA Philippines
Local aircraft parts makers are optimistic they will hit their target revenue of $2.5 billion in exports as early as next year, but uncertainties on the future of tax incentives put this at risk.
In an interview with reporters on Tuesday, Aerospace Industry Association of the Philippines President Dennis Y. Chan said the export target of $2.5 billion by 2022 could be achieved as early as 2020. He attributed this to booming global demand for aircraft, which, in turn, will need parts and systems.
“We might be surpassing that already because in 2019 we are already hitting $2 billion,” Chan said.
However, this could be spoiled if the government insists on rationalizing incentives as proposed under the Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill. Chan argued the Trabaho bill places investors in an uncertain position that could lead them to relocate to other countries.
“I think right now, the biggest issue is that what they are talking about [the Trabaho bill is] that they want to take away the Peza [Philippine Economic Zone Authority],” he said.
“What makes life easy for most of the manufacturers [is the Peza]. If you want to take away the Peza, you have to take away all the benefits of exporters: the tax incentives. Now investors will ask the government: why should I go to the Philippines? What more is your advantage without the tax perks?” Chan added.
The Trabaho bill will gradually reduce corporate income tax to 20 percent by 2029 from 30 percent. On the other hand, it will rationalize incentives granted to firms located in special economic zones managed by the Peza.
One of the crucial incentives that will be overhauled by the Trabaho bill is the 5-percent tax on gross income paid in lieu of all local and national taxes.
Further, Chan raised the possibility that corruption may proliferate if the authority to approve investments is stripped away from the Peza and transferred to local governments. He said this will be counterproductive to the administration’s objective of getting more investments and will work against the trade department’s aspiration to bolster the domestic manufacturing sector.
“First problem with the Trabaho bill is fear. A manufacturer will build, plant, build again, develop before it can sell its products. We are talking about five years. That is the problem with the Trabaho bill, the uncertainty it will cause,” Chan said.
Data from the DTI reported the aerospace industry posted a compounded annual growth rate of 4.2 percent from 2012 to 2016. In 2016 Europe and the Americas are the country’s biggest export destinations for aircraft parts with shares of 45.8 percent and 40.8 percent, respectively, while the Asia-Pacific accounted for 12.8 percent.
Local aircraft parts makers are currently capable of exporting original equipment manufacturing parts. This includes flight control actuation systems, interiors, galleys and equipment, panels and lavatories for global commercial aerospace firms.