VietNamNet Bridge – Tax incentives offered by Vietnam to foreign direct investors help attract business and improve the competitiveness of the country in the global economy. However, when things go beyond the framework, there will be a “competitive race to the bottom”.
Local authorities’ incentives overlapping state’s incentives
UNIDO, the United Nations Industrial Development Organization, has released a report on Vietnam’s industrial development, following its 2011 survey, which it conducted jointly with the Vietnamese Ministry of Planning and Investment.
Vietnam offers many different investment incentives, including tax incentives (corporate income tax, import-export preferential tariffs, and income taxes of different kinds), privileges in land access, bank loan access and financial support.
In addition to incentives offered by the government, foreign-invested enterprises (FIEs) can also enjoy perks from local officials, which may provide subsidies for anything from site clearance toad vertising campaigns to labor training costs.
97 percent of polled FIEs in Vinh Phuc Province, 79 percent in Hanoi, 72 percent in Dong Nai and 65 percent in Bac Ninh said they received financial support from local authorities.
While Vietnam accepts sacrificing its short-term interests to attract businesses that bring long-term benefits, it is not having much success attracting “high quality” FDI. UNIDO’s Vietnam Chief Representative Patrick Gilabert said only 5-6 percent of foreign investors bring advanced technologies to Vietnam, while the other 94-95 percent use low- or medium-technologies for their factories here.
This finding coincides with the conclusions of some Vietnamese organizations that FIEs mostly operate in the low-wage business fields, using an unskilled workforce.
The expert emphasized that the main goal of attracting FDI should be to foster economic development, not nullify the national economy.
Pham Chi Lan, a renowned independent economist, commented that while foreign investors enjoy numerous preferences in land, tax or capital access, Vietnamese investors dare not dream of such incentives. Therefore, she strongly recommends amending the policies.
“Removing excessive privileges for foreign investors, creating a level playing field for enterprises from all economic sectors, no matter whether they are state-owned, privately-run or foreign-invested, and punishing FIEs that conduct transfer pricing to evade tax,” are the policies Lan recommends to serve the best interests of the country.
The expert went on to say that all economies must develop with their inner strength instead of relying on resources from outside.
The story of Formosa Ha Tinh
Formosa Ha Tinh Steel Corporation is the FIE which enjoys the highest possible investment incentives in accordance with current laws.
As an investor in economic zones, it enjoys preferential tariffs on imports of machines, equipment and material which still are not made domestically.
Other proposals by Formosa Ha Tinh, including the measures to protect the steel industry and towage business, are being considered by ministries and branches.
However, Formosa Ha Tinh wants yet more incentives. It has proposed setting up a special economic zone for itself which can enjoy specific preferences, which, in the eyes of analysts, are “unprecedented” in Vietnam.
The Taiwanese firm has also proposed that it be allowed to sell land to its 15,000 workers, about 15,000. (The number could be as high as 60,000 if family members are counted.)
Analysts commented that if permitted, there would be a “Formosa town” in the area near the special economic zone in the Vietnamese territory.