Incentives must be an effective tool for investment screening

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Priority sectors should be identified to attract investment proactively. Source: Internet.

Broad range of incentives

Currently, the policy of attracting investment is implemented in accordance with the Investment Law of 2014, Law on Corporate Income Tax (Revised) 2013, Law on Import-Export Taxes 2016, Decree No. 118/2015/ND-CP detailing and guiding the implementation of a number of articles of the Investment Law, Decree No. 123/2017/ND-CP amending a number of articles regulating the collection of land use fees, Land rent, water surface rent, Decree 57/2018/ND-CP on mechanisms and policies to encourage businesses to invest in rural agriculture, non-agricultural land use law.

Overview of investment preferential policies in Vietnam, Dr. Dinh Trong Thang, head of the investment policy department (CIEM), said that since there are no statistics on the reduction of budget revenues due to the implementation of tax incentives and the effectiveness of tax incentives, so it is difficult to accurately assess the impact of tax incentives. The tax incentive system of Vietnam is relatively complicated, the scope of incentives stipulated in the Law on Investment is quite wide and spread. "Many of the survey results show that the most important factors that investors are most interested in investing in are economic and political stability, labor costs, tax policy, legal framework and quality of infrastructure", said Mr. Dinh Trong Thang.

The process of attracting investment also shows the problems that need solving. Dr. Dinh Trong Thang said, according to the World Bank, preferential policies on tax exemption and reduction may encourage businesses to avoid taxation by restructuring their investment into new projects to continue enjoying incentives. In addition, quoted assessment of Oxfam, Dr. Dinh Trong Thang emphasized that we apply high tax incentives to implement some social objectives, but so far there is no clear evidence to prove the effectiveness of these policies due to the lack of necessary data sources.

Considering the case of Samsung, Dr. Vu Sy Cuong, Finance Academy, Ministry of Finance, said that Samsung Vietnam is entitled to 10% corporate income tax rate, 4 year tax exemption and 50% reduction in the next nine years. This will only start to pay corporate income tax from 2013. Samsung's total tax payments for 2014 are 165 million USD, 186 million USD for 2015, 300 million USD for 2016, and 186 million USD for the first half of 2017... General assessment of tax incentives of Vietnam today, Dr. Vu Sy Cuong said that the impact of tax incentives on the allocation of resources in investment is limited, not to attract investment in areas with extremely difficult socio-economic conditions. In addition, some forms of tax incentives are becoming loophole for companies to take advantage of, tax evasion and tax incentives also create a burden on the budget.

"Vietnam's tax incentives are relatively complex due to the wide range of incentives (preferential by sector and preferences by area and size of capital) as set out in the Investment Law. There are 30 sectors of investment incentives and 27 areas of special investment incentives entitled to preferential investment, including tax incentives. At the same time, more than 300 kinds of industrial parks, export processing zones and hi-tech parks are entitled to tax incentives in various forms", said Dr. Vu Sy Cuong.

An effective "filter" tool for investment

Mr. Le Thuy Trung, deputy director of the Department of Industrial Economics, MPI, said that at this time, policies on attracting investment did not achieve the desired effect. "For example, with the automotive industry, we are not saying that failure, but the government's desire for localization ratio, on technology transfer is not achieved. The world's major automakers such as Honda, Toyota... are present in Vietnam but now mostly assembled, the technology transfer is very little. The electronics industry is the same", said Mr. Le Thuy Trung.

According to Dr. Nguyen Dinh Cung, Director of CIEM, said that in the new economic trend, attracting investment in the width is not suitable and does not bring about the desired effect. Therefore, it is necessary to have a new policy on attracting FDI.

Emphasizing the complexity of preferential policies is actually posing many problems, Assoc. Dr. Vu Sy Cuong said that Vietnam should study to reduce the application of preferential form of time tax exemption and reduction. Administrative procedures related to tax incentives should be simpler and more transparent. "It is necessary to carry out calculations, analyze the costs and benefits of tax incentives prudently and long-term before promulgation and after the implementation of the incentives, review the legal system of tax incentives provided for in other laws to ensure consistency in incentives and avoid tax breaks in the locality", said Mr. Vu Sy Cuong.

Regarding this issue, Mr. Le Tuan Anh, Legal Department, MPI also said that it is very interested in processing projects with preferential frames. In 2005, the Prime Minister decided to handle the projects with preferential frames but to the present time, the problem has not been thoroughly handled. "There are overlapping incentives related to the inconsistency between tax law with other legal systems, such as the law on investment, CIT incentives, tax incentives for enterprises inside and outside industrial parks and economic zones", Mr. Le Anh Tuan said.

Recommendations on investment incentives in the coming time, Mr. Dinh Trong Thang, said that the general assessment of the effectiveness of investment incentives in Vietnam should identify priority sectors to attract investment actively. Only give incentives that Vietnam really needs and cannot do, reducing dependence on the foreign economic bloc. Need to shift from size-based incentives and gross profits into incentives based on efficiency and added value in the country. "FDI should be attracted in an active manner, based on weaknesses and strengths of localities by enhancing local attractiveness in the eyes of investors who want to attract, in the direction of moving from attraction by advantage available to build advantage according to attracting demand", Mr. Thang said.

Should have tax incentives for special economic zones? VCN- 85% of investors in Vietnam claimed that tax incentives were not ideal conditions for attracting investment. ...

Emphasizing "the need to use incentives as a tool to screen investment incentives," Mr. Le Anh Tuan said, Vietnam has been deeply involved in the world economy with many commitments, so it cannot use technical barriers to limit investors to some sectors and localities. Therefore, using incentives as a tool for investment screening is a major issue worth noting. "Previously, the conditions to be invested are how many local labors will be used and how long will technology be transferred... but now with international commitments, we do not have permission to do so. Instead, we ask: If enterprises do these things, we will give preferential to businesses like this, because incentives are what we have the right to them. As investors pay more attention to Vietnam and when we need to select better investors or projects, incentives are a good tool. On the one hand, we do not violate international commitments and on the other hand, it is consistent with the general trend of developed countries", said Mr. Le Tuan Anh.