Honda’s closure creates risks of ‘domino effect’ on small firms

THE Philippine Economic Zone Authority (Peza) fears that the announced shutting down of Honda Cars Philippines Inc.’s (HCPI) manufactuing plant will create a domino effect on locators inside the country’s economic zones.

Peza Director General Charito Plaza said multinational firms, like Honda, may have suppliers that are Peza-accredited companies.

“We have all other big companies that are threatening to pull out. Most of them are not under Peza but we have locators that are suppliers of these companies, so we are still affected in a way,” Plaza said.

On Saturday, Feb. 22, HCPI said it will shut down its manufacturing plant in Sta. Rosa, Laguna effective March 2020.

In a statement posted on its website, HCPI president Noriyuki Takakura said the decision to stop production operations in the Philippines was reached after they considered the need to optimize allocation and distribution of resources.

“As such, after consideration of optimization efforts in the production operations in Asia and Oceania region, Honda decided to close the manufacturing operations of HCPI,” the company stated.

Honda Philippines will, however, continue its automobile sales and after-sales service operation in the Philippines, through the utilization of Honda’s Asia and Oceania regional network.

The Laguna plant produces passenger cars, BR-V and City. It was established in November 1990 inside the Laguna Technopark with a capitalization of P1.9 billion.

The facility, which started production in 1992, employs about 650 people.

Besides HCPI, Nokia also announced it is closing down its research and development (R&D) unit in Quezon City by 2020. The closure will affect the jobs of 700 information technology professionals and adminsitrative staff.

These announcements came at the height of the Covid-19 outbreak, a disease caused by coronavirus, that is now hurting the tourism and trade activities of the country.

She said although these companies claimed the reason of ceasing operation is not about government policies but of management decision, Plaza noted “it (reason) is the most polite way (of saying).”

Plaza said they are still assessing how much economic loss Peza-accredited companies would incur if big manufacturing firms threaten to close.

“Peza compensates the other factors like the cost of business since we are the second country in Asia with the highest power cost and we still lack transportation, infrastructure and communication facilities. So how can we attract investors in the country?” she said.

Citira bill

Meanwhile, Plaza said “they are praying that the final (version) of the corporate income tax and incentives rationalization (Citira) bill will be very investor-friendly.”

The Citira bill seeks to lower the income tax rate from 30 percent to 20 percent, and modernize the tax incentive system.

With the recent closure announcements, Plaza said they hope the lawmakers and President Rodrigo Duterte “will see the light and realize that the incentives provided by Peza are tried and tested.”

These Peza incentives include income tax holiday, duty-free importation of raw materials and capital equipment, domestic sales allowance, exemption from payment of local government taxes and fees.

The Citira bill, however, will “modernize” some of these incentives including the tax breaks of select investors.

The Senate’s version of the Citira bill sponsored by Sen. Pia Cayetano, prioritizes incentives of business activities that generate local employment, promote development, innovation, high technology projects and agribusiness, as well as those that invest in less developed areas or communities recovering from disasters and conflicts.

Under the bill firms with qualified activities may avail themselves of two to four years of income tax holiday, and another three to four years of the special corporate income tax (SCIT) rate, which shall be eight percent of their gross income by 2020, nine percent by 2021 and 10 percent by 2022, in lieu of all taxes.

The SCIT may be extended by three to four years at a time for a maximum of 12 years.

Firms with qualified activities may also avail themselves of the regular corporate income tax regime with enhanced deductions for five to eight years, which may be extended by three to four years at a time for a maximum of 12 years.

Enhanced deductions include up to 50 percent additional deduction on power expense, which is a new provision not found in earlier versions of the bill; up to 50 percent additional deduction on labor expense; up to 100 percent additional deduction on R&D; up to 50 percent additional deduction on domestic input expense; a deduction for reinvestment allowance to the manufacturing industry (up to 50 percent of reinvestment); depreciation allowance of the assets acquired for the entity’s production of goods and services (additional 10 percent for buildings and 20 percent for machinery); and enhanced net operating loss carry over.

The Senate version also extends the sunset period for firms currently paying the rate of five percent of gross income earned in lieu of all taxes, from five years in the House to seven years for firms that export 100 percent of output, employ 10,000 Filipino workers in the incentivized activity, or are engaged in “footloose” manufacturing. (JOB / MVI / SunStar Philippines )


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