Workers assemble electronic parts at a FDI company in Bac Giang province. Experts are concerned that the enactment of GMTR would neutralise the tax incentives offered by developing countries. (Photo: VNA)Under GMTR rules, corporations with more than 750 million EUR inannual revenue would be subject to an effective tax rate of at least 15%, notincluding deductions for depreciation and certain tax credits. The introductionof GMTR is aimed to increase compliance costs and create a level playing fieldbetween developed and developing countries.
The European Union has unanimously agreed to implement the rate onJanuary 1, 2024. Japan followed suit with the enactment date being April 1,2024. Other countries are preparing their legislation for the adoption of GMTRin the short term, including Indonesia, Malaysia, and the Republic of Korea(RoK).
Experts worried that the introduction of GMTR in other countrieswould cancel out the tax incentives that Vietnam has laid down for years andresult in tax revenues being effectively exported to those countries.
They took RoK companies operating in Vietnam for example. Thesecompanies are subject to a preferential tax rate of 7%. Once GMTR comes intoforce in the RoK, the companies would have to pay an additional rate of 8% toRoK tax authorities, which is the difference between the Vietnamese rate andGMTR.
Dang Ngoc Minh, Deputy Director of the General Department ofTaxation, estimated that 1,015 FDI companies operating in Vietnam would beunfavourably affected by the broad-based tax rules.
He said global corporate heavyweights in the country are enjoyingtax rates of between 2.75% to 5.95%, far lower than the GMTR of 15%. As such,the implementation of GMTR abroad would cost Vietnam a couple of billions ofdollars in tax loss every year.
Thomas McClelland, country tax leader at the Deloitte VietnamCompany Ltd, urged Vietnam to act quickly and decisively to adopt GMTR.Otherwise, the country would lose out to others on the differential taxrevenues.
Some other experts shared this view, saying that Vietnam must bequick to bring GMTR into force to boost its tax revenues from FDI companies.But they also warned that the bandwagon would pose some new challenges forpolicymakers, who would have to find non-tax ways to attract FDI.
Can Van Luc, chief economist at BIDV, believed that theimplementation of GMRT would put developing countries at a competitivedisadvantage, especially those using fiscal incentives as a magnet for FDI.
He urged Vietnam to improve its business environment andinvestment climate to make up for the tax incentives that would diminish in thenext few years.
"A sound business environment and investment climate are morebeneficial to investors than the financial incentives offered in the form oftax cuts," said Luc.
It is also worth noting that GMRT can only be officially put inplace next year under the circumstance that the Government proposes amendmentsto Corporate Law, Investment Law, and Tax Law to the National Assembly beforeOctober 2023./.
VNA
