Criteria for special investment incentives must be suitable to link Vietnamese enterprises with FDI

The criterion of the percentage of Vietnamese enterprises will be more difficult to implement than the value-added criterion. Source: Internet

Recently, VCCI submitted a document commenting on the draft decision of the Prime Minister on special investment incentives drafted by the Ministry of Planning and Investment.

The draft proposes three levels of incentives for projects under industries with special investment incentives of more than VND 30,000 billion.

Level 1: corporate income tax is at 9% for 30 years, but exempt from tax for the first five years and reducing by 50% for the next 10 years; land rent and water surface rent are exempted for 18 years, the remaining time is reduced by 55%. Level 2 is the tax rate of 7% for 33 years but exempt from tax for the first six years and reduced by half for the next 12 years; land rent and water surface rent are exempted for 20 years, the remaining time reduced by 65%. Level 3 is a 5% tax rate for 38 years, tax exemption for the first six years and reduced by 50% for the next 13 years; land rent and water surface rent is exempted for 23 years and the remaining time is reduced by 75%

The condition for investment projects enjoying level 2 and level 3 is to achieve some additional criteria like high technology, percentage of Vietnamese enterprises participating in the chain, added value and technology transfer.

The VCCI believed that the inclusion of these additional criteria was necessary, however, according to some experts, the implementation of these criteria would require a lot of effort from firms engaging in the investment, instead of not fulfilling any additional criteria to enjoy preferential at level 1.

Meanwhile, preferential levels are designed to increase gradually according to each level, so the gap between each level is not huge. According to the VCCI, the current draft design might not create enough motivation for large investment projects to implement additional criteria.

Therefore, the VCCI proposed that the drafting board reconsider the design of the incentive levels, maybe study and adjust to create a longer gap between the preferential level 1 (without additional criteria) and the preferential level 2 and 3 (including additional criteria) to create a more motivating mechanism.

The draft also developed two additional criteria for investment projects to enjoy incentives at levels 2 and 3, namely the criterion for value-added content and the criterion of the number of Vietnamese enterprises participating in the chain. However, VCCI said that the quantitative levels of the two criteria not really appropriate with each other.

The reason is that to fulfill the added value criterion, large firms can call on foreign suppliers in their supply chains to invest in Vietnam to open factories, supply components and materials for them in Vietnam. Meanwhile, to fulfill the criterion of the percentage of Vietnamese firms participating in the chain, large corporations need a lot of time and effort to rebuild the chain, and even support and train Vietnamese businesses which have capacity to participate in the chain. So the criterion with the percentage of Vietnamese companies will struggle to implement than the value-added criterion.

The VCCI said that, because these criteria are two independent sub-criteria and enterprises can choose to apply one of these criteria to enjoy incentives, the quantitative level of the criterion of the percentage of Vietnamese companies participating in the chain might not create a strong attraction for large corporations to build supply chains with the participation of Vietnamese firms. Therefore, the drafting board needs to amend the quantifications of the two criteria as mentioned above to ensure feasibility and fairness between sub-criteria.