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Solutions for next-generation FDI attraction proposed
Thursday,  7/12/2018, 12:21 

Solutions for next-generation FDI attraction proposed

By Ngoc Lan

An employee is on a production line of a foreign textile company in this file photo - PHOTO: QUOC HUNG

HANOI - Vietnam’s policy for attracting investment, including in high-tech sectors, might work well when luring first-generation foreign direct investment (FDI), but a more thorough evaluation is needed for the next generation of FDI attraction, according to the International Finance Corporation (IFC).

At a workshop on investment incentives on July 10, Vice Chairman of Vinh Phuc Province Le Duy Thanh noted that among the policies to attract investments, tax incentives were widely used in developing countries, including Vietnam. However, views on the efficiency of tax incentives are varied.

Tax incentives are viewed as efficient in some cases, but at the same time, they contribute to a decline in budget collections. In addition, these policies make it difficult to allocate resources in the economy and increase the complexity of the tax system. This is because tax incentives come in various forms, such as preferential tax rates, durations of tax exemption, tax reductions and reductions in land use fees.

Of the tax incentives offered, the most popular is special tax exemption and reduction durations, particularly in developing countries like Vietnam. Vietnam previously applied different tax incentives to domestic investments from foreign ones, but this discrimination is being restricted.

Nonetheless, investment incentives are not the critical factor for investors seeking opportunities in Vietnam, Thanh told the workshop co-organized by the Ministry of Planning and Investment and Deloitte.

In fact, tax incentives provided for investments in less-developed regions or for agricultural and seafood projects have not resulted in much investment in those regions and sectors. Further, Vietnam’s tax policies have not really appealed to foreign investors, as the scale of application is quite disparate.

Investment incentives are not the end of the line when it comes to attracting investors, Thanh said, adding that the investment environment being transparent, administrative procedures being handled quickly and on time and management authorities being dedicated play a greater role.

According to Bui Ngoc Tuan, deputy general director of Deloitte, tax incentives are more about particular locations than particular sectors. The provision of incentive policies according to sector has encountered difficulties with procedures, while service sectors with high added value do not have appropriate incentives and tax rates are quite rigid. In addition, FDI enterprises have difficulty accessing project information and guidance on project registration and business registration, among other things. Therefore, various solutions should be worked out to encourage investments.

The solution package for tax incentives proposed by Deloitte concerns the building of a more flexible and diverse mechanism with a combination of many incentive forms. Regarding investment procedures, the firm proposed the continued use of national and ASEAN single-door mechanisms, support for the simplification of procedures in areas with restrictive business conditions and the building of information channels that investors can access.

According to the IFC, a member of the World Bank Group, investment incentives only work under certain specific conditions. Not every development goal can be achieved with this tool.

The goals of many incentive policies in Vietnam, noted the IFC, are scattered. There are, in some cases, overlaps between investment promotion and comprehensive growth targets. A successful identification of the expected results and measurements is crucial in evaluating policy effectiveness and ensuring sustainable development.

An IFC representative said Vietnam greatly depends on tax holidays and preferential rates. Tax holidays have appeared to be more beneficial to investors with a short-term vision instead of ensuring long-term benefits for host countries.

As for investors with innovative investments, they often have to undergo many years of not generating profits when starting up their business or testing new models and technologies. As a result, short-term tax exemptions do not bring in many benefits.

For this reason, the IFC recommended Vietnam shift to efficiency-based policies, particularly tax deductions and tax subsidies. The management of these incentives will be more complex but will deliver higher efficiency.

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