The tax policy impact on luring in fresh investment

January 19, 2024 | 10:30
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New tax policies in recent years have contributed significantly to building confidence from foreign investors and creating a competitive and sustainable business environment, directly contributing to Vietnam’s foreign investment growth in 2023.

Tax administrative reforms, such as the Portal for Foreign Suppliers, have also made Vietnam one of the top countries ASEAN in terms of collecting taxes on cross-border foreign suppliers.

The tax policy impact on luring in fresh investment
Nguyen Minh Da, tax advisory services Mazars Vietnam (left) and Nguyen Tan Tai tax advisory services Mazars Vietnam

At the end of December, the portal recorded that 74 foreign suppliers had already registered, declared, and paid taxes. Accordingly, the total state budget payment was $341.35 million, of which nearly $291 million was declared and paid directly through the portal and $50.6 million paid on behalf of Vietnamese parties in the form of tax-withholding.

Thus, since the portal was put into operation in March 2022, foreign suppliers have actively registered, declared, and fulfilled tax obligations of more than $421.9 million. With this tax policy, the playing field for foreign suppliers, especially in digitalisation and e-commerce, has become fairer and fairer, thereby creating peace of mind for other investors.

In 2023, the General Department of Taxation (GDT) recorded 357 e-commerce trading platforms have declared tax registration information. The tax authorities have collected and handled violations against almost 180 enterprises and just over 1,000 individuals doing business on e-commerce trading platforms with the penalised amount of about $11.6 million, thereby making the business environment competitive.

In 2024, the GDT shall continue to have unified instructions related to the reception and processing of information from domestic e-commerce trading platforms, thereby promptly managing taxpayers and other tax-related revenues, avoiding state loss from this potential field.

In the context that the Law on Tax Administration 2019 has many important changes related to VAT refund procedures, the implementation of electronic invoices helps the tax authority manage invoices more closely. However, making VAT refund procedures inevitably faces many difficulties. Facing this situation, the GDT continuously issued directives related to urging local tax authorities to quickly implement tax refunds last year.

In March 2023 in Paris, the Organisation for Economic Co-operation and Development held the signing ceremony of the Convention on Multilateral Administrative Assistance in Tax Matters (MAAC) for Vietnam. The MAAC is the most comprehensive multilateral international legal framework currently covering all forms of international cooperation on tax administration to address tax evasion and avoidance.

Vietnam’s signing of the MAAC will create a multilateral legal framework to expand international cooperation on tax administration, implement the Party and state’s policy on comprehensive and effective international integration, and raising the level of multilateral diplomacy.

Joining MAAC was also a necessary condition required for forum members to cooperate in implementing tax base erosion and profit transfer; at the same time, this is also the EU’s criterion for assessing the level of cooperation of a country on tax issues; contributing to enhancing Vietnam’s prestige and position in cooperation frameworks with multilateral international economic and financial organisations.

We believe the application of the new global minimum tax policy will make Vietnam’s tax incentive mechanism no longer retain its inherent function, so it will lose its attractiveness to foreign investors. But from a global perspective, the tax will create a more level playing field, as countries that mainly use low or no tax policies to attract investment no longer dominate.

With other inherent advantages in Vietnam, such as abundant human resources, low investment costs, and diversified natural resources, we believe that the Vietnamese government can fully use these advantages as leverage to research new investment policies, technology, labour, environment, and administrative procedures, especially in areas that Vietnam has not fully exploited such as green investment and advanced technology.

The government decision to keep VAT at 8 per cent will also continue to create better conditions for businesses to reduce production costs and increase profits, as well as increase the ability to stimulate the economy.

The draft outline is being considered by the government, with most of the proposed amendments revolving around taxable subjects being updated to include foreign enterprises that generate income sourced from Vietnam through sales on e-commerce platforms. It will also legislate deductible expense items for corporate income tax computation, which has been only specified in subordinate legislations such as interest payments of enterprises with related-party transactions, and more besides.

We believe that this draft outline clearly demonstrates the view of the Ministry of Finance that it pays close attention to the codification of the applicable practices of legal documents under the law, as well as the guidance and interpretation of regulations by some local tax authorities to promote the synchronous application of laws. This contributes to the consistent interpretation of relevant legal provisions as well as creating stability for the development of legal policies; and thereby, creating peace of mind for the foreign direct investment community in Vietnam.

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