Consider adjusting the preferential mechanism for FDI

Proportion of corporate income tax exemption and reduction of FDI enterprises accounted for 76% of the whole country. Source: Internet.

Offers are not exclusive

Financial incentives focus on three areas, namely corporate income tax incentives (CIT), incentives for export and import taxes and incentives for land finance.

Currently, according to the amended and supplemented Law on some articles of CIT Law No. 32/2013/ QH13, the general tax rate from 25% to 22% and down to 20% applies from January 1, 2016. Law No. 32 inherited the preferential provisions of Law No. 14/2008/ QH12, and at the same time added incentives for investment in industrial zones (except for industrial zones in areas with advantages of socio-economic conditions) and expanded investment projects. To the Law amending and supplementing a number of articles of Tax Law No. 71/2014/ QH13, effective from January 1, 2015, adding a number of fields and industries eligible for tax incentives such as cultivation, animal husbandry, agricultural, forestry and fishery processing (not preferential treatment for forest product processing); manufacturing supporting industrial products; large-scale and high-tech production projects. In addition to tax rates, incentives are also divided by geographical areas with priority subjects in areas with difficult socio-economic conditions and geographical areas with exceptionally difficult socio-economic conditions, high technology zones, economic zones, and industrial zones.

In terms of import and export taxes, in order to meet the requirements of integration commitments and at the same time continue to perfect export preferential policies and attract foreign investment, the Law on Import and Export Taxes continued to be updated and amended in the years, 2001, 2005 and 2016 such as: Adding high-tech enterprises, science and technology enterprises, scientific and technological organizations are exempted from import tax on raw materials, supplies and components which cannot be produced in the country within 5 years from the commencement of production, supplement of regulations on tax exemption for raw materials, supplies and components which cannot be produced domestically to produce and assemble medical equipment required for priority research and manufacturing.

In parallel with taxes, land financial instruments are also a popular form of incentives. In the period from 2005 up to now, to support enterprises, the Government has issued many specific support policies and solutions such as 50% reduction of land rent in the period of 2011-2014; adjusted to reduce the rate of calculating the common land rent rate from 1.5% to 1%, and the provincial-level People's Committee being able to specify in a frame rate from 0.5% to 3% by region, with the route corresponding to each land use purpose to apply the collection of land rent in the locality...

Implementing the Land Law in 2003, followed by the 2013 Land Law, the Government issued Decrees regulating land use levies, land rent and water surface rent collection and promulgating under the authority of the Information guide with regulations to support businesses, improve business environment. In particular, the outstanding highlights are the exemption of land rent and water surface rent for investment projects in the fields and geographical areas eligible for investment incentives according to the provisions of investment law; incentives in the field of socialization; incentives when investing in agriculture and rural areas; expanding the scope of application of land price adjustment coefficients and application objects to determine financial obligations regarding land rents for enterprises that have reformed administrative procedures, shortened the determined time and announced the payment of land rent into the state budget and partial support for businesses...

At the same time, to attract investment, strengthen management and effective use of land financial resources in economic zones and high-tech zones, the Government has issued Decree No. 35/2017/ ND- CP dated 3 April 2017, regulating the collection of land use fees, land rent and water surface rent collection in economic zones and hi-tech parks with incentives higher than the preferential rates of ordinary investment projects.

Not for FDI to enjoy "benefits"only

Evaluating the impacts of the above financial incentives, the Ministry of Finance said that: The financial preferential policy has contributed to the mobilization and attraction of resources, especially from the foreign investment sector in investment and development of production and business, promoting exports and ensuring economic growth without creating inequality between FDI enterprises and domestic enterprises, and even encouraging newly established enterprises to invest more capital, expand scale, improve production capacity.

However, besides the positive, limitations also arise. Deputy Minister of Finance Huynh QuangHai pointed out some of the limiting highlights. There is a high level of preferential treatment; the preferential area is wide and spread, reducing the state budget revenue while the state budget is very inadequate to meet the demand for investment and socio-economic development. For example, CIT incentives: Enterprises are entitled to 10% tax rate for 15 years, 4 years tax exemption and 50% tax reduction for the next 9 years. In addition, in some cases the 10% tax rate applies during the project implementation period.

In particular, it must be acknowledged that, although the preferential tax policy applies uniformly to all economic sectors, however, the FDI sector is enjoying more from preferential policies. This is proved by Deputy Minister Huynh QuangHai by the proportion of the number of CIT incentives to be exempted and reduced by FDI enterprises, accounting for 76% of the whole country, or the ratio of CIT exempted or reduced by FDI enterprises on the total payable CIT calculated at the common tax rate of 48%, while this rate for SOEs is 4.6%, for non-state enterprises it is14%,...

In order to quickly resolve these shortcomings, the Ministry of Finance is submitting to the Government a number of solutions, which emphasize tax reforms in order to create changes in resource allocation and incentives, and by filtering for selection of investment attraction to develop reasonably by region, prioritizing important areas according to the development policy of the State. Along with that, there is a need for completing the preferential policies on land in the direction of reviewing the land preferences to ensure the consistency between land law, investment law and other policies of the State.