When Incentives Exist but Adoption Lags

There are few venues in Manila where policy, capital, and operational reality collide as candidly as they do at the Monday Circle.

The Philippines’ semiconductor industry is quietly scaling up, as global manufacturers expand local operations and position the country as a critical node in the regional electronics supply chain.

Held twice a month over breakfast, the gathering was never designed to be your usual press forum.

It is closer to a working table, where media practitioners, investors, regulators, and policy stakeholders trade notes on what actually works and what quietly does not. Often, there are no prepared speeches in the traditional sense.

What emerges instead are patterns, gaps, and occasionally, uncomfortable truths.

Last Monday’s discussion placed the Philippine semiconductor industry at the center of that table.

The guest was Cesar Tolentino, an industry advocate who recently completed a regulatory impact study for the Development Academy of the Philippines (DAP) focused on electronics and semiconductors. What he shared was not a macro sermon about industrial policy.

It was a granular account of how one of the country’s most ambitious investment tools risks underperforming because it remains poorly understood and unevenly implemented.

Tolentino recounted that his team surveyed 160 semiconductor and electronics firms, with 68 responding in full, and asked a deceptively simple question: “which domestic regulation would most help companies grow today?”

The answer, he said, was not infrastructure, not labor rules, and not even the income tax holiday that has long defined investment promotion.

It was the enhanced deduction option under the CREATE MORE Act, the mechanism that allows registered firms to itemize and expand deductions on taxable income after the tax holiday period.

On paper, CREATE MORE, formally enacted as Republic Act No. 12066 in November 2024, was designed to modernize the Philippines’ incentive system.

For investment incentives to work at scale, government stakeholders must understand not just the law itself, but the underlying investment math that makes provisions like CREATE MORE attractive to global manufacturers.

It lowered the corporate income tax for registered business enterprises to 20 percent under the enhanced deduction regime, extended incentive availment periods to as long as 27 years for priority projects, expanded VAT zero-rating on export-related purchases, and simplified approval processes.

For energy-intensive manufacturing, the law introduced a particularly consequential change: the additional deduction for power expenses was doubled, from 50 percent to 100 percent, provided those expenses are directly attributable to registered projects.

In effect, qualifying firms can now deduct the full cost of power consumption on top of standard expense treatment, materially reducing taxable income.

Yet Tolentino’s central claim was that despite the law being in force and its implementing rules already issued, adoption of the enhanced deduction route has been virtually nonexistent. He framed this not as a failure of intent but as a failure of translation.

Companies, he said, broadly believe the enhanced deduction framework is more valuable than the flat 5 percent special corporate income tax.

At the same time, many finance teams do not know how to apply for it, how it is assessed, or how it is sustained over time.

The concern he raised is not abstract. Enhanced deductions demand rigor. They require companies to track costs, including power, depreciation, and training, at the project-unit level.

They require assessors to evaluate tax accounting, not just compliance checklists. And they require reporting systems that can withstand audit.

In Tolentino’s telling, the friction arises because most firms continue to rely on consolidated accounting designed for statutory reporting, while regulators tasked with administering incentives are optimized for procedure rather than technical tax analysis.

The result is hesitation on both sides, and incentives that exist in law but not in practice.

This gap matters now because the Philippines is no longer selling itself on aspiration alone.

In November 2025, Samsung Electro-Mechanics Philippines Corporation (SEMPHIL) announced a P50.7-billion expansion of its Calamba, Laguna facility, aimed at increasing production of high-value components such as multi-layer ceramic capacitors.

The project, expected to create around 3,000 jobs, was presented as one of the first major investments aligned with CREATE MORE.

The timing was not incidental. The agreement, which followed high-level discussions during the APEC meetings in Busan (led by President Ferdinand R. Marcos, Jr. himself), reinforced the Philippines’ position in global electronics and electric vehicle supply chains.

Power, predictably, was part of the equation. In fact, Manila Electric Company (Meralco) committed to supplying the additional electricity requirements of SEMPHIL’s expansion, with technical coordination already underway.

For a manufacturing sector where electricity costs have historically been among the highest in the region, the ability to pair reliable supply with fiscal relief is not a secondary consideration. It is central to investment math.

This is where CREATE MORE’s enhanced deductions on power expenses deserve greater attention.

Meralco’s commitment to power Samsung Electro-Mechanics Philippines Corp. highlights why energy stability across the Luzon Economic Corridor is essential as the region emerges as the backbone of the Philippine semiconductor industry. [Photo: Meralco]

By allowing registered firms to deduct an additional 100 percent of power costs directly tied to registered projects, the law effectively cushions one of the Philippines’ structural disadvantages.

In combination with Meralco’s efforts to stabilize supply and negotiate competitive arrangements for large industrial loads, the deduction transforms electricity from a deterrent into a manageable variable.

But only if companies understand how to claim it, and only if the administrative machinery can support consistent assessment.

The stakes extend beyond Laguna. Meralco has positioned itself as the foundational power provider for the Luzon Economic Corridor (LEC), the investment spine stretching from Subic through Metro Manila to Batangas.

The corridor, backed by a trilateral initiative involving the Philippines, Japan, and the United States, is meant to anchor high-impact manufacturing, logistics, and technology projects. Energy reliability is its non-negotiable backbone.

Batangas, in particular, illustrates how infrastructure and incentives intersect.

The recent proposed joint venture between Meralco and Batangas II Electric Cooperative (BATELEC II) aims to modernize distribution in a province that hosts a growing concentration of industrial estates and tourism hubs.

By injecting capital, technical expertise, and system-strengthening measures, the partnership is widely seen by local business groups as essential to reducing outages and losses that undermine investor confidence.

Without dependable distribution at the edge of the corridor, even the most generous tax regime struggles to deliver results.

What emerged from the Monday Circle discussion was not a case against CREATE MORE.

It was a reminder that laws do not attract capital. Systems do. Incentives only become effective when firms can operationalize them, and regulators can administer them with clarity and competence.

Enhanced deductions on power expenses, depreciation, and training are powerful tools, especially for energy-intensive manufacturing like semiconductors.

But they require a shared understanding that incentives are not merely compliance obligations.

They are financial strategies embedded in accounting architecture.

The Philippines has momentum. Semiconductor exports grew faster than expected in 2025. Global firms continue to expand local operations. Talent remains a competitive asset.

The risk now is not ambition but execution.

If the country can translate CREATE MORE from statute to standard practice, align power infrastructure with industrial growth, and close the gap between policy design and day-to-day implementation, the next wave of investments will not need to be persuaded individually.

They will arrive because the system works.

At the Monday Circle, over coffee, unlimited breakfast, and unguarded questions, that was the quiet consensus. The opportunity is real. The tools are already in place. What remains is effort to make them usable at scale.

--

ABOUT AUTHOR