Investors look past corporate tax cuts

The government is planning to lower the corporate income tax rate in a bid to favour investors, but some observers have countered that greater investment incentives should also be taken into consideration।

Scores of foreign invested firms have put their hand up in support of lowering corporate tax rates

Truong Chi Trung, Vice Minister of Finance, said the plan to reduce corporate income tax (CIT) by 3 per cent down to 25 per cent, which would bring Vietnam in line with other countries in the region, was being carefully considered.
Trung said that a number of companies had complained in recent years about the tax being too high, and expressed their belief that maintaining tax level at 28 per cent could adversely impact the business environment.
“The CIT reduction plan, which is expected to become effective in 2008, could cause the state coffers to witness a dramatic drop in revenues,” said Nguyen Van Ninh, head of the General Department of Taxation under the Ministry of Finance.
He estimated CIT collection would provide around VND30 trillion ($1.9 billion) to the state budget this year, around 3 per cent of the country’s GDP.
“If the CIT reduction goes into effect, the state budget could lose around VND3 trillion ($190 million), equivalent to 10 per cent of total CIT revenues,” he said.
“On the other side,” he added, “the business environment will become more and more attractive, resulting in increased investment”.
Ninh said the CIT adjustment was planned within a comprehensive and long-term strategy on tax reshuffles until 2010, and set up in an effort to make the country’s tax system more attractive to investors.
Martin Rama, a lead economist at the World Bank, said the CIT reduction was obviously a positive step forward to attract investors.
“However,” he said, “more importantly, the government should pay special attention to other investment incentives in line with its WTO commitments.”
Rama noted that there remained different standards for foreign and domestic investors, an obstacle that needed to be tackled quickly.
He said Vietnam’s drive to create a favourable business environment was on the right track, resulting in numerous new firms entering the nation’s market.
Ngo Thanh Tung, managing partner of the Vietnam International Law Firm, said the CIT rate was just one factor that foreign investors take into consideration before setting up in Vietnam.
“Other important factors are comfort and ease of infrastructure and administrative procedures,” he highlighted, adding that the assurance of a highly-qualified labour force was a necessity.
Tung commented that the adjusted CIT rate of 25 per cent was lower than that currently applied in China and other regional countries.
“Now is the perfect time for Vietnam to attract foreign investors, but the government must pay due attention to a comprehensive package of reforms regarding not only taxes but also other factors so as to keep foreign investors. The immediate and urgent problem to be settled is the assurance of enough electricity for investors.
“The macro-economic policies are favourable, but implementation at the grassroots levels remains cumbersome,” Tung said.
He said apart from improvements to the investment environment, Vietnam needed to improve living conditions for investors, particularly the diversification of services like entertainment, shopping, healthcare as well as the minimisation of environmental pollution.


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