According to the Ministry of Planning and Investment (MPI), the application of the global minimum tax (GMT) at 15 per cent will make a direct impact on the country’s scheme to draw in investments by large-scale global corporations.
|Plans manifest to balance GMT impact, illustration photo/ Source: freepik.com |
In order to address this, the ministry has proposed pilot support policies in terms of training skilled human resources and research and development (R&D) for foreign-invested enterprises (FIEs) that are investing in the production of technology and high-tech products at a total of VND12 trillion ($510 million) or revenues of more than VND20 trillion ($851 million) per year; and investing in R&D projects worth over VND3 trillion ($128 million).
This assistance will be deducted from the tax obligations of FIEs or paid directly by contributions deducted from the state budget, in the way that several other countries in the region are applying.
Nguyen Duc Do, deputy director of the Institute of Economics-Finance at the Academy of Finance, commented that the incentives for every FIE should be considered carefully by the Ministry of Finance.
“When taxes are no longer favourable, switching to monetary incentives is also reasonable and quite common worldwide,” Do said.
Do added that the Organisation for Economic Co-operation and Development – which initiated the GMT regime, applied on corporations and large companies with a total income of $820 million or more – does not prohibit cash assistance.
“However, the assessment of risks needs to be considered and calculated carefully. Vietnam can both do and learn from other countries because this is one of the competitive factors in attracting foreign direct investment (FDI),” Do said.
“In the past, Vietnam has offered favourable taxes to mobilise investment, but numerous enterprises have been reporting losses for many years, even up to 20 years, so tax incentives do not make any sense,” he added.
The application of the GMT from 2024 will not only help Vietnam increase state budget revenue from additional tax revenue, but also reduce tax evasion, tax avoidance, transfer pricing, and profit transfer.
Daniel Borer, who is an economics lecturer at RMIT University Vietnam, said the GMT scheme could discourage investments in low-tax jurisdictions, like Vietnam, as the tax advantages would be diminished.
On the other hand, it may encourage funding in countries with robust infrastructure, skilled labour, and attractive non-tax factors, as tax considerations would be less dominant.
“Vietnam should streamline administrative procedures. This will help draw in more foreign investors. This can be achieved through the implementation of increased digitalisation and enhanced transparency,” Borer said.
“Vietnam furthermore would need to ensure both transparency and accountability in its investment policies and practices. The Vietnamese government can achieve this by establishing clear and consistent rules and regulations, then enforcing them fairly and consistently,” he added.
Economist Vo Tri Thanh said that Vietnam still has considerable ability to attract FDI.
“However, it is still necessary for leaders to pay wider attention to various issues including clean land, high-quality human resources, and incentives that in line with international practices,” Thanh said.
According to the MPI’s Foreign Investment Agency, in July, FDI inflows increased by 9 per cent on-year, and in the first seven months of the year, it was 4.5 per cent higher than the same period last year.
Around $7.84 billion in newly registered FDI reported a rise of 38 per cent on-year, while $4.14 billion in capital contributions and share purchases saw an increase of approximately 60 per cent on-year.