Garments and leather goods manufacturers warned of factory shutdown and mass layoff once the government enacts a version of the proposed Tax Reform for Attracting Better and High-quality Opportunities, or Trabaho bill, that will raise the tax rate on gross income earned to 8 percent from 5 percent.
The Confederation of Wearable Exporters of the Philippines said about 110,600 workers in small and medium-scale enterprises engaged in the garments and the leather goods industries might lose their jobs as this sub-sector had not yet attained a decent profit. The garments and leather goods sub-sector employs about 250,000 workers in the country.
“Competitive as they are, my members’ margins are only so much. The recent proposal to increase [GIE] to 8 percent in exchange for other incentives will be disastrous for us. Frankly, the 7 percent proposed by other economic zone locators is way too much of a stretch for us already,” said CONWEP executive director Maritess Jocson-Agoncillo.
Majority of the companies are located in economic zones. About 10 percent of the members are registered with the Board of Investments.
A study commissioned by the group found out that a company with 1,500 workers were prone to immediate shutdown within six months to one year due to small margins.
“To those producing mid-size products like jeans, the displacement of workers would be 50 percent in 12 to 18 months. These are medium-sized firms employing 3,000 to 5,000 per factory,” Agoncillo said.
She said for companies producing higher-end products like suits, the displacement threshold would be 30 percent to 32 percent in 12 to 18 months.
The apparel section represented about 68 percent of the sector’s exports amounting to $1.08 billion in 2017. The figure dropped to $928 million in 2018. Leather goods exports accounted for 31 percent of the total.
Meanwhile, other industry groups led by the Philippine Ecozones Association said the Philippines would continue to lose opportunities to its neighbors that offer better incentive packages.
“If these investments were not here to begin with, there will be no investors. Many companies have mothballed their expansion plans because of these developments,” said Philea president Chito Zaldarriaga.
Industry groups such as CONWEP, the Semiconductor and Electronics Industries in the Philippines Foundation Inc., the IT and Business Process Association of the Philippines and different foreign chambers supported the call of the Philippine Economic Zone Authority to maintain the status quo on all the incentives.
The groups said tax incentives in the economic zones had led to the creation of more than 7.5 million jobs and over $54 billion worth of exports over the years.
“To remove or even dilute tax incentives granted to locators now would risk the loss over time of millions of jobs and investments that would otherwise have been committed to the Philippines,” the groups said.
Ecozone locators strongly oppose the Trabaho bill which they said would grossly affect the entry of investments and might force employers to cut employment.
Combined foreign direct investments in economic zones dropped 70 percent to P140.24 billion in 2018 from P237.57 billion in 2017.