IF the government intends to revive the local garments industry, it must guarantee tax incentives for investors who will be willing to risk capital in revival efforts, the Foreign Buyers Association of the Philippines (Fobap) has said.
Fobap President Robert M. Young said incentives will play a “crucial” role in the bid to rejuvenate the garments industry. He argued revival efforts will only succeed if existing tax perks, such as the 5-percent tax on gross income paid by economic zone firms in lieu of all local and national taxes, are retained.
Incentives will be overhauled under the proposed Tax Reform for Attracting Better and High-Quality Opportunities bill, also known as the Trabaho bill.
The Trabaho bill will gradually reduce corporate income tax to 20 percent in 2029 from 30 percent and rationalize incentives. The measure is awaiting the approval of senators, who are currently on a break for the midterm polls in May.
Fobap Director Ding Buendia added the garments industry will be provided with the needed boost should the government grant subsidies for power and labor.
“Benefits of tax incentives in the Trabaho bill should not be removed. In fact we should give more. [The government has to] subsidize power and labor enhancement [and] skills training. Garments manufacturing is very labor intensive,” Buendia said in a statement.
He said a couple of Chinese firms are now looking into setting up factories here, while some are planning to partner with Philippine companies.
“We should take advantage of these [opportunities]. We should give incentives for them to come,” Buendia said.
Young said the government has to revitalize the garments industry if it wants to trim the country’s trade gap.
“The more we export, the more that the dollar remittances will come in from the foreign buyers. Little by little, it can somehow ease the trade imbalance, which is right now 80 percent-20 percent already: 80 percent import, 20 percent export,” Young said.
Exports for the whole of last year fell 1.8 percent to $67.48 billion from $68.71 billion in 2017, while imports jumped 13.4 percent to $108.92 billion from $96.09 billion, data from the Philippine Statistics Authority (PSA) showed.
Young claimed the Philippines can penetrate more markets, particularly its Southeast Asian neighbors, if the garments industry is revived. He said top garment manufacturers, such as Bangladesh, Vietnam, Sri Lanka and Myanmar, are all now getting filled up, leaving no space for fresh new production.
The Philippines used to be fifth largest exporter of garments to the United States—the world’s top importer of the goods—with the local industry employing about 850,000 workers in 1995.
However, after the expiration of the trade privilege Multi-Fiber Arrangement, employment figures went down. In an industry brief, the Board of Investments (BOI), citing PSA data, said about 442,000 workers remain in garments manufacturing in 2014.
The bulk of the garment enterprises are located in Metro Manila, Central Luzon and Southern Tagalog.
The government, under the leadership of the BOI, is trying to revive the garments industry. Last year it crafted a road map identifying the impediment to growth of manufacturers and the way forward for the industry.