Tax policy changes worry foreign investors
HAØ NOÄI The changes in tax policy and investment incentives are the issues of greatest concern for foreign investors in Vietä Nam, said Buiø Ngocï Tuaná , deputy general director of the Audit and Advisory firm Deloitte Vietä Nam at a workshop on Tuesday in Haø Noäi yesterday.
The event, themed Investment incentives, related party transactions: situation and solutions, was coorganised by Deloitte Vieät Nam, the Ministry of Planning and Investment and the Ministry of Finance.
The factors impacting foreign direct investment activities often include the fluctuation of the tax rate through the years, available incentives in the country, flexibility in the application of incentive schemes, time for investment procedure and advantages and disadvantages of administrative investment procedures, Tuaán said.
The Vietnamese Government is continuing to make policy adjustments toward a flexible and transparent orientation to create the most favourable conditions for foreign investors to enhance their national competitiveness, Tuaán said.
The tax system reform strategy for the 2011-20 period has brought achievements, said Nguyeãn Thu Thuûy, a representative from the Taxation Policy Department of the Ministry of Finance.
Under the reform, tax policies create a fair and equitable environment without discrimination between different economic sectors, forms of ownership and taxpayers.
However, Thuyû said, many foreign invested enterprises (FIEs) were taking advantage of strong investment incentives, such as land rent, Corporate Income Tax (CIT) and Personal Income Tax (PIT), to transfer prices and profits.
An analysis of financial statements of FIEs from 2012 to 2016 shows that the number of FIEs reporting losses is between 44 per cent and 51 per cent.
At the same time, the increase in scale of investment and business activities from these FIEs reporting losses is higher than the increase in the number of FIEs reporting losses, which shows that the problem of transfer price in the FDI sector is increasing and becoming more complex, Thuûy said.
Besides the price transferring activities of FIEs from Vieät Nam to abroad, there are also cases of the backward transfer of profits (from abroad to Vietä Nam) of some large FIEs enjoying high incentives in CIT rates and CIT exemptions and reduction periods.
This is shown by the data that the average return on equity (ROE) of FIEs in some sectors over the years has always remained very high, such as electrical components computer, peripherals, telecommunications and software, with ROE before tax more than 30 per cent.
There should be a control mechanism to limit the FIEs reporting losses that still continue to invest in expanding operations in order to enjoy incentive tax, Thuûy added.
Transfer pricing is an integral part of global trade, hence it cannot be avoided, said Thomas McClelland, General Director of Deloitte Vieät Nam.
Transfer pricing is not only about margins and benchmarking analysis, it also requires business performance assessments, McClelland said.
He added that tax authorities need to understand the business realities and then take an appropriate course of action. They also need to enforce basic compliance first rather than cherry picking taxpayers for audit.
The national legal system needs to be internationalised in order to promptly catch up with international trends. For example, more bilateral treaties should be signed, he said.
If Vieät Nam currently does not have mechanisms in place to measure the impact of their incentives, it is strongly advisable that a monitoring and evaluation system (M&E) be implemented, said Wim Douw, a senior expert for trade and competitiveness policy at the World Bank.
Such a system should be based on clearly defined policy objectives and would track the performance of both the costs and benefits of the incentives offered. VNS