Philippines Joins Pax Silica, Eyes AI Hub Amid Environmental Concerns

The Philippines is positioning itself as a strategic player in the global technology and artificial intelligence (AI) ecosystem by joining the US-led Pax Silica initiative, which aims to strengthen AI and semiconductor supply chains. This move is expected to foster technological innovation and economic growth, but it also raises concerns regarding environmental impact and national security. Pax Silica, announced by the US Department of State in December 2025, is an international initiative designed to promote a trusted ecosystem among AI developers and vendors, revitalizing legacy industries and unlocking new market opportunities. As a long-standing ally of the US, the Philippines signed the Declaration of Inclusion in April 2026 and is aiming to sign the Agreement in November. The Philippines was chosen for this initiative due to its rich natural resources, strategic geographical location, and highly skilled workforce. The planned AI industrial acceleration hub, to be constructed within a vast industrial zone in New Clark City, is expected to attract investment, particularly from the semiconductor and energy sectors, positioning the Philippines as a significant player in the global AI industry. This is anticipated to create jobs and lay the groundwork for a robust innovation ecosystem capable of attracting long-term foreign investment. The government has also indicated the potential utilization of fiscal incentives provided under the CREATE MORE Act to attract investment. These may include an Income Tax Holiday during the initial years of operation, followed by either an Enhanced Deductions Regime or Special Corporate Income Tax. These measures aim to improve the viability of projects, especially those with substantial capital investment. Fiscal incentives often play a decisive role in investment decisions, apart from the availability of natural resources and highly trainable workforce. Recognizing this, government officials have indicated that firms participating in Pax Silica may avail of incentives provided under the CREATE MORE Act. It is worth noting that under the 2026 Strategic Investment Promotions Program (SIPP) signed in May, semiconductors and electronics manufacturing, energy, and sustainability-driven industries are considered tier 1 activities. These activities are aligned with the requirement of Pax Silica Hub in Tarlac. If an industry or projects falls under the SIPP list, it may be eligible for registration with Investment Promotions Agencies (IPA) such as the BCDA and Board of Investment (BoI). Once registered and approved, these enterprises may avail of the incentives under the Tax Code, subject to compliance with the requirements of CREATE MORE and the IPA concerned. Among the incentives potentially available are the Income Tax Holiday (ITH) during the early years of operations and, thereafter, either an Enhanced Deductions Regime (EDR) or the Special Corporate Income Tax (SCIT), depending on the applicable incentive package. These measures are intended to reduce business costs and improve project viability, particularly for capital-intensive investments. Furthermore, purchase of goods and services from local suppliers by registered enterprises may be subject to VAT at zero-rating, provided that such local purchases are directly attributable to their registered activity. VAT zero-rating also applies to their payments to non-resident foreign suppliers for services rendered in the Philippines or to non-resident digital service provider. Imports of registered enterprises may also be exempt from duties and taxes. Transfer pricing will become a key consideration for multinational enterprises (MNEs) expected to be attracted by Pax Silica, particularly for cross-border transactions involving digital services, intellectual property, and shared services. Companies must ensure that related-party transactions comply with the arm’s length principle and are supported by adequate transfer pricing documentation. In addition, the Department of Finance (DoF) is pursuing the proposed Qualified Domestic Minimum Top-Up Tax (QDMTT), which would require large MNEs to pay a minimum effective tax rate of 15% on Philippine-sourced income. This measure aims to preserve the country’s taxing rights by ensuring that any top-up tax is collected by the Philippines rather than by foreign jurisdictions. Furthermore, payments made to non-resident foreign corporations (NRFC) for business profit, royalties, interest, dividends, or other cross-border transactions may qualify for preferential tax rates under the applicable tax treaty. To avail of these treaty benefits, Philippine entities must comply with the relevant administrative requirements, including securing a Tax Residency Certificate from the NRFC, and obtaining a Certificate of Entitlement to Tax Treaty Benefits from the Bureau of Internal Revenue (BIR). Failure to comply with these requirements may result in the denial of the treaty benefit and the imposition of regular tax rates. Despite the significant economic opportunities associated with Pax Silica, environmental concerns remain an important part of the conversation. Large-scale industrial and technology developments can place substantial demands on natural resources. Data centers, advanced manufacturing facilities, and AI infrastructure often require significant amounts of electricity, cooling systems, and water resources. These demands on natural resources come on top of the environmental crisis that the Philippines is currently experiencing. The worsening effects of El Niño in Central Luzon have affected the water supply. As a result, environmental groups and stakeholders have called for greater transparency regarding the projects’ environmental impact. Concerns have also been raised regarding land use, ecosystem preservation, biodiversity protection, and potential effects on surrounding communities. These issues are particularly relevant in a country that is highly vulnerable to climate change and environmental degradation. Concerned groups argue that economic development should not occur at the expense of environmental sustainability. They emphasize the importance of conducting thorough environmental impact assessments and ensuring compliance with environmental regulations before major development activities proceed. Finding the optimal balance between the requirements and demands of economic and technological advancement, environmental stewardship, and protection of the environment and its people will likely determine the long-term success of Pax Silica in the Philippines. Source: BusinessWorld Economy