A production line of household appliances at a factory of LG Electronics Vietnam in the northern city of Hai Phong (Source: VNA)
Hanoi (VNS/VNA) - The changes in taxpolicy and investment incentives are the issues of greatest concern for foreigninvestors in Vietnam, said Bui Ngoc Tuan, Deputy General Director of the Auditand Advisory firm Deloitte Vietnam at a workshop on in Hanoi on July 10.
Themed “Investment incentives, related partytransactions: situation and solutions,” the workshop was co-organised byDeloitte Vietnam, the Ministry of Planning and Investment and the Ministry ofFinance.
“The factors impacting foreign direct investmentactivities often include the fluctuation of the tax rate through the years,available incentives in the country, flexibility in the application ofincentive schemes, time for investment procedure and advantages anddisadvantages of administrative investment procedures,” Tuan said.
The Vietnamese Government continues to makepolicy adjustments toward a flexible and transparent orientation to create themost favourable conditions for foreign investors to enhance their nationalcompetitiveness, Tuan said.
The tax system reform strategy for the 2011-2020period has brought achievements, said Nguyen Thu Thuy, a representative from theTaxation Policy Department under the Ministry of Finance.
Under the reform, tax policies create a fair andequitable environment without discrimination between different economicsectors, forms of ownership and taxpayers.
However, Thuy said, many foreign-investedenterprises (FIEs) are taking advantage of strong investment incentives, suchas land rent, Corporate Income Tax (CIT) and Personal Income Tax (PIT), totransfer prices and profits.
An analysis of financial statements of FIEs from2012 to 2016 shows that the number of FIEs reporting losses is between 44 percentand 51 percent.
At the same time, the increase in scale ofinvestment and business activities from these FIEs reporting losses is higherthan the increase in the number of FIEs reporting losses, which shows that theproblem of transfer price in the FDI sector is increasing and becoming morecomplex, Thuy said.
Besides the price transferring activities ofFIEs from Vietnam to abroad, there are also cases of the backward transfer ofprofits (from abroad to Vietnam) of some large FIEs enjoying high incentives inCIT rates and CIT exemptions and reduction periods.
“This is shown by the data that the averagereturn on equity (ROE) of FIEs in some sectors over the years has alwaysremained very high, such as electrical components computer, peripherals,telecommunications and software, with ROE before tax more than 30 percent,” shesaid.
There should be a control mechanism to limit theFIEs reporting losses or losses in capital that still continue to invest inexpanding operations in order to enjoy incentive tax, Thuy added.
Transfer pricing is an integral part of globaltrade, hence it cannot be avoided, said Thomas McClelland, General Director ofDeloitte Vietnam.
“Transfer pricing is not only about margins andbenchmarking analysis, it also requires business performance assessments,” McClellandsaid.
He added that tax authorities need to understandthe business realities and then take an appropriate course of action. They alsoneed to enforce basic compliance first rather than cherry picking taxpayers foraudit.
The national legal system needs to beinternationalised in order to promptly catch up with international trends. Forexample, more bilateral treaties should be signed, he said.
“If Vietnam currently does not have mechanismsin place to measure the impact of their incentives, it is strongly advisablethat a monitoring and evaluation system (M&E) be implemented,” said WimDouw, a senior expert for trade and competitiveness policy at the World Bank.
Such a system should be based on clearly definedpolicy objectives and would track the performance of both the costs andbenefits of the incentives offered.-VNS/VNA
