Attract FDI: Need tax incentives to encourage long-term investment

How do you assess the financial incentive policies to attract FDI in the past time? How effective are those incentives?

First of all, I think that before 2004, the financial preferential policy had a distinction between domestic enterprises and FDI enterprises. However, since 2004, implementing the policy of the Party and the State is to attach importance to both FDI and domestic capital, so the financial preferential policies have gradually shifted towards applying equally between economic section and types of businesses.

For accurate and comprehensive evaluation, a full survey of information is required. However, from the movements of investors, market reactions and changes in the economy in the past years, it can be seen that the financial preferential policies have created an equal legal environment in production and business to compete and develop between domestic enterprises and FDI enterprises, thereby contributing to attracting both domestic and foreign investment capital, promoting exports and creating a foundation for economic growth, creating many jobs and improving people's lives.

Financial preferential policies, especially corporate income tax incentives, have contributed to economic restructuring in the direction of modernization and promotion of the country's comparative advantages. Besides large state-owned economic groups, there are more and more private enterprises and FDI enterprises in the country. Many famous corporations in the world have invested heavily in Vietnam such as Samsung, Toyota, Honda, and Mitsubishi...

FDI enterprises with FDI capital contributed significantly to import-export turnover. Export of FDI sector accounts for an increasing proportion of the total export turnover of the whole country (accounting for 72.6% in 2017). Along with that is a significant contribution to the state budget revenue. In 2012, the FDI sector contributed to the state budget (excluding revenue from crude oil) of over VND 83 trillion, in 2013 more than VND 111 trillion, more than VND 123 trillion in 2014, more than VND 140 trillion in 2015. In 2016, it was VND 161 trillion, accounting for 19% of the total state budget revenue and by 2017 accounted for 14.5% of the total state budget revenue.

It can be seen that preferential policies have brought Vietnam quite a lot of "profits". However, inadequacies must still exist. According to you, what are they?

Exactly, financial preferential policies in general and tax incentives in particular still have some shortcomings that need to be adjusted to better serve the country's socio-economic development. These are: High preferential rates, large preferential areas (especially corporate income tax incentives) and spread to reduce state budget revenue while the state budget is very insufficient to meet demand for investment in socio-economic development.

In addition, although the tax preferential policy applies uniformly to all economic sectors, in reality, the FDI sector is enjoying more from the financial preferential policies shown in the proportion on the corporate income tax entitled to exemption and reduction of FDI enterprises on the total exempted corporate income tax of the whole country up to 76%, and the rate of preferential corporate income tax exemption and reduction of FDI enterprises on total of payable corporate income tax based on the common tax rate of 48%, while this rate of state-owned enterprises is 4.6% and non-state is 14%.

The integration of social policies into corporate income tax incentives makes tax policies more complicated, difficult to manage, easy to create loopholes for businesses to take advantage of tax avoidance, transfer pricing and tax evasion.

In particular, tax incentives by investment areas are less effective in practice but create favorable conditions for activities of price transfer, tax avoidance and tax evasion.

From the perspective of an expert, according to you, in the coming time, how should the Ministry of Finance adjust these policies to attract better capital and overcome existing shortcomings?

Stemming from the shortcomings in the above financial incentives, it is necessary to adjust this policy in the following basic directions:

Firstly, it is necessary to narrow the tax incentives, especially corporate income tax incentives. Accordingly, should only focus on tax incentives for a few important sectors and sectors according to the development policy of the State, the industry of producing high value-added products, the field of socialization, technology, and environment and related to agriculture, farmers and rural areas. Tax incentives should be removed to implement social policy (shifting to social policy implementation with other financial instruments); eliminate "redundant" incentives, such as tax incentives for industrial parks.

Secondly, it is recommended to select tax incentives to encourage long-term investments. Accordingly, it is recommended to reduce the subjects who are entitled to tax exemption, corporate income tax reduction for a definite time and reduce tax exemption and reduction time.

Thirdly, unifying all tax incentives turn into law, not providing tax incentives in other specialized laws to ensure consistency and transparency of the law.

Fourthly, completing preferential land policies towards reviewing land preferences ensures consistency between land law, investment law and other policies of the State. At the same time, it is necessary to clearly identify the beneficiaries of land incentives for the State to come directly to the beneficiaries.

Thank you Sir!

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