‘Fiscal reforms imperil garments sector’

The apparel and textile industry’s export performance declined 15 percent in 2018, to $1.128 million from $1.344 million in 2017.

The Confederation of Wearable Exporters of the Philippines employs 40 percent of the roughly 150,000-man apparel sector base. AFP

Fiscal incentive reforms could further imperil the already struggling wearables sector due to other factors such as high wages rendering it less competitive with neighboring Southeast Asian countries.

This was imparted by Confederation of Wearable Exporters of the Philippines (CONWEP) associate director Rosette Carrillo, who said the perception of uncertainty, brought by the Corporate Income Tax and Incentives Rationalization Act (Citira) bill, will have a direct impact on labor.

Exporters, especially those registered with the Philippine Economic Zone Authority (PEZA), have been lobbying for exemption from the Citira bill. The measure has been approved by the House of Representatives on third and final reading on Friday.

Citira seeks to cut the corporate income tax rate from 30 percent to 20 percent, but also aims to remove certain PEZA-given tax perks such as the 5 percent gross income earnings (GIE) incentive that locators enjoy after their income tax holiday (ITH) has expired after four to six years.

The method enables the firms to remit 2 and 3 percent of their GIE to the local and national government, respectively, instead of paying all national and local taxes. Instead of its removal, the exporters are bargaining for higher GIE instead, as well as a longer duration for ITH in lieu of the three-year ITH proposed under the Citira.

“The world is a really competitive market, we’re not just riddled by challenges outside the country, but the Citira has also become a serious challenge for us,” Carrillo said in a briefing by PEZA earlier in the week.

CONWEP accounts for 68 percent of the country’s total annual export value for export manufacturers of apparel and textile, and 25 percent of the annual export value of leather goods and footwear exports.

Furthermore, it employs 40 percent of the around 150,000-man apparel sector base.

Its members, 90 percent of which aree large-scale manufacturers, produce products such as children’s wear, undergarments, ladieswear, menswear, scarves, travel goods, leather handbags, gloves, baseball gloves and footwear for export.

In its position paper on the Citira, formerly known as the Trabaho bill, the group said that a reduction in exports in the industry is an “alarming precedent” considering that other countries such as Vietnam and Cambodia are especially benefitting from fleeing investors in China due to the United States-China trade war.

CONWEP said the apparel and textile industry’s export performance declined 15 percent in 2018, to $1.128 million from $1.344 million in 2017.

According to the group, higher wages amounting to $265 a month have placed it in a noncompetitive spot with Cambodia’s minimum wage of $170 and Vietnam’s $149. CONWEP attributed the higher wages to the concentration of workers in provinces with the highest rates, including Bataan, Pampanga, Cavite, Laguna and Cebu.

It added that investors utilize incentives as counter-weight for the higher cost of wages and power. Taking into consideration its survey report, CONWEP is forecasting the displacement of 36,000 to 60,000 workers in the apparel sector within the first year of the Citira’s implementation. It said the country could lose another 30,000 workers from smaller-sized export-oriented firms in the first year of the Citira.

“The investors want to stay. In fact, our board of directors flew in from different parts of the world to meet with the government to really emphasize the intention to stay but they need also commitment from the government to…establish consistency; that’s all we’re looking for,” Cirrillo said.