Level-playing field for all businesses

Amid complaints about foreign firms receiving more government incentives unfairly and overshadowing domestic peers, experts claim that all Vietnamese policies are equal for domestic and foreign enterprises.

Vietnamese companies claim some tax incentives unfairly favour FDI firms,  Photo: Duc Thanh

Nguyen Mai, chairman of the Vietnamese Association of Foreign Invested Enterprises, told VIR, “In Vietnam, no enterprises suffer from discrimination in any policies, including tax-related ones.”

“All policies relating to investment are fair to all local and foreign firms. No provision in any laws in Vietnam states that foreign direct investment (FDI) enterprises are given better treatment than Vietnamese enterprises,” said Mai, who is former Deputy Chairman of the State Commission for Cooperation and Investment (now the Ministry of Planning and Investment).

Currently, Vietnam gives major investment incentives to projects in specific sectors, like high-tech agriculture and supporting industries; in specific geographical areas; and depending on projects’ scale.

“Samsung and other FDI enterprises in Vietnam enjoy higher tax incentives than Vietnamese ones because they can more easily meet criteria set by the state, not because the country’s policies are unfair and the government prefers FDI, as local firms may think” Mai said. “If local firms meet the criteria, they can also enjoy these incentives.”

In fact, two months ago, locally-owned Vingroup began construction of its $3.5 billion automobile factory. This project receives as many special incentives as Samsung, including a 10 per cent corporate income tax (CIT) rate (as opposed to the usual 20 per cent on average) for 15 years, a CIT exemption for the next four years, and a 50 per cent CIT reduction for nine subsequent years.

These incentives have also been given to the Hoa Phat steel project in the south-central province of Quang Ngai.

Hong Sun, vice chairman of the Korean Chamber of Business in Vietnam, told VIR that, like other foreign firms, Korean ones in Vietnam are receiving fair treatment from the government, just as local firms are.

“It is unfair to say that foreign firms are receiving better treatment than Vietnamese firms,” said Sun, who is CEO and president of HSDC Co., Ltd. “Vietnam’s laws, especially the Law on Enterprises, do not discriminate between foreign enterprises and local ones. All are treated equally. However, as the laws state, if you meet specific requirements, you can get specific incentives.”

For example, under the 2008 Law on Corporate Income Tax and the law on amending and supplementing a number of articles of the above law, newly-established firms investing in the high-tech sector and/or producing software, as well as high-tech enterprises and high-tech agricultural enterprises qualify for a range of incentives, including the above-mentioned CIT reductions.

According to the Ministry of Finance (MoF), Korean giant Samsung is the biggest beneficiary of CIT incentives in Vietnam. In 2016 alone, the group enjoyed a total of VND20.19 trillion ($917.7 million) in tax breaks for all of its companies in the country. The total CIT incentive cost for all firms in the country was about $2.13 billion last year – including $1.6 billion for FDI firms – and about $5.32 billion over the past three years.

According to an MoF source, the FDI sector is receiving incentives equal to 91.9 per cent of their total CIT. Meanwhile, the rate is 17.8 per cent for Vietnamese private firms, and only 4.8 per cent for Vietnamese state-owned firms. The source said FDI firms have done a better job in reaching CIT incentives than Vietnamese firms, who are finding it difficult to meet requirements set in the tax-related laws.

Dustin Daugherty, senior associate of pan-Asia consulting firm Dezan Shira & Associates, told VIR that Vietnam’s incentive regimes are among the more competitive in ASEAN. Many investors choose Vietnam over its regional competitors based on the savings made possible by these incentives. “Both foreign and local firms can equally benefit from these programmes. Two examples of this are investments offered within industrial zones and incentives offered to companies investing in disadvantaged areas of the country. In these areas, it is common to see Vietnamese enterprises and their foreign counterparts operating side by side,” Daugherty said.

Marko Walde, chief representative of German Industry and Commerce Vietnam, also told VIR, “I think the government should create a ‘level playing field’ and offer the same economic framework for local companies and foreign investors. This is the only way to create a fair competition and each company will improve. “If FDI firms invest in Vietnam and enjoy the incentives, in return they support Vietnam in technology transfer, in creating an effective supply system/supply clusters, in educating people and in dealing with environmental problems as well.”

However, in the National Assembly, some lawmakers have lamented that local firms are being overshadowed by foreign firms.

“Let’s look back on how many types of incentives the state has given to FDI firms, including big tax reductions and exemptions, and even tax exemptions for transfer profits overseas. Meanwhile, the state remains inflexible and stiff towards Vietnamese firms, which have made great contributions to the economy,” said deputy Pham Trong Nhan of the southern province of Binh Duong.

Nhan, who is vice chairman and vice general director of Binh Duong Construction and Materials Co. Ltd., also cited a survey which states that in the period 2007-2015, about 50 per cent of FDI firms in Vietnam declared losses – including many suffering from consecutive losses – but remained strong in production expansion.

Deputy Nguyen Phi Thuong of Hanoi, also chairman of Transport Corporation Hanoi, said that despite enjoying great incentives from the state regarding taxes, land, and labour, many FDI enterprises are taking advantage of Vietnam’s natural resources while causing environmental pollution.

Deputy Nguyen Thanh Hien from Nghe An also suggested that incentives must be equal for all enterprises in the economy. “Solutions must be found to prevent FDI enterprises from declaring losses and transfer pricing, which causes large dents in the state budget,” Hien said.

By Nguyen Dat