Component makers seeking clarity on incentives

Nguyen Minh Ngoc runs a company in an industrial zone of the northern province of Bac Ninh which produces silicon and adhesive film for phone LCD screens. Last month, it was refused confirmation of incentives for projects making supporting industry items on the government’s list of products prioritised for development.

Ngoc understood that his company’s project could enjoy incentives because its products are in the category of electronic components on the government’s list of supporting industry items prioritised for development in Decree No.111/2015/ND-CP.

“We properly followed the procedures to submit documents to request confirmation of incentives for projects making supporting industry items. They were submitted to the local Department of Industry and Trade, but we were rejected due to our products not being completely appropriate to the list in Decree 111.”

“Numerous manufacturers of spare parts and components like us are the primary suppliers of factories that are manufacturing and outsourcing such products prioritised for development as specified in Decree 111. Therefore, the production of these spare parts and components is critical and indispensable to a complete chain of items,” Ngoc said.

Component makers seeking clarity on incentives, illustration photo, source: internet

Furthermore, many of these spare parts and components play a key role and account for a large proportion of the total value of finished products, Ngoc added. At the same time, certain spare parts and components require technologies that are even more advanced than the primary products.

“This process is very time-consuming, and applicants have to submit additional documents multiple times at the request of the licensing agency. It took several months and a lot of our effort to prepare the dossier and wait for feedback several times, and still we were not approved,” Ngoc said.

Megatech Vietnam Co., Ltd. in Hanoi’s Quang Minh Industrial Zone, which processes plastic trays for holding phone cameras, and manufactures and processes tape and film used in the production of phones and electronic devices, is also facing the same difficulty. Its operations do not entirely match the category of electronic components (plastic, rubber, mechanical, electronic, and glass) in Decree 111’s list, so they cannot enjoy as many incentives as they were expecting.

“Many enterprises making spare parts or components specified in Decree 111 have submitted applications but failed to receive approvals,” said Seck Yee Chung, a representative of the tax and customs working group at the Vietnam Business Forum last month. “These types of enterprises need to be entitled to incentives. The fact that the list of supporting industry products excludes certain groups of projects can lower the effectiveness of the goals of the decree,” Chung said.

Many compliance issues in the past have been addressed by businesses by following applicable procedures, but the licensing agency still rejects their application on the grounds of previous issues, Chung said. “These have led to financial and time burdens on businesses, while lowering the effectiveness of incentive policies and making the business environment in Vietnam less attractive,” he added.

The business community suggested at the forum that the Ministry of Industry and Trade (MoIT) should be tasked to implement confirmation procedures and facilitate appraisal and approval of requests to address specific problems in the implementation of admin procedures, ensuring compliance with prescribed deadlines for the sake of investors.

Decree 111 guides supporting industries, focusing on some business sectors such as textiles and garments, leather, electronics, automobile manufacturing, and more. However, while industries evolve rapidly, and numerous new essential and useful production fields in the chain have emerged, the regulations reveal more inadequacies and limits as they do not cover enough major products with key roles and contributions to industrial development.

To push the industry forward, since last year the MoIT has been building a draft amending Decree 111 to add many new proposed preferential policies, including corporate income tax incentives, supporting human resource training, research and development, trial production, application, transfer and innovation of technology.

In the draft submitted to the government last year, the MoIT proposed that the central budget support interest rate compensation (3 per cent) through the commercial banks with medium and long-term loans in VND to invest in supporting related projects.

The draft also expands the definition of supporting industry and supplements the list of products to cover more stages of production and more items in the chain, specifically adding “processing” and “auxiliary materials” into the definition of supporting industry. It also adds more stages of production for textiles, accessories for the textile, leather, and footwear industries, and components for electronics, vehicle manufacturing, mechanical engineering, and high-tech industries to the list.

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