Vietnam drafts next-generation FDI attraction strategy

According to Nguyen Noi, deputy head of the Foreign Investment Agency (FIA), by June 2018, the total registered FDI capital had reached $331.2 billion, of which $180.7 billion has been disbursed. 

Vietnam’s ratio of FDI on GDP is higher than China, India and most ASEAN countries. Of invested business fields, manufacturing/processing is leading with 58 percent of total FDI capital, followed by the real estate sector with 16 percent.

Commenting about FDI in Vietnam, Wim Douw from IFC said FDI mostly targets business fields such as real estate and manufacturing/processing industry with low added value.

Surveys show that almost no foreign invested enterprise (FIEs) thinks that Vietnam’s competitive edge lies in a high percentage of qualified workers or local competitive supply chains. 

Meanwhile, the FIEs which have business activities in China, Thailand and the Philippines said workers in the countries have better skills and better supply chains.

The expert recommended that Vietnam focus on attracting FDI to hi-tech environmentally-friendly, fuel-saving industries.

Phan Huu Thang, former director of FIA, contributing his ideas to the next-generation FDI attraction strategy, stressed that the new policy needs to fix problems.

Agreeing with Thang, Dau Anh Tuan, head of VCCI’s (Vietnam Chamber of Commerce & Industry) Legal Department, said it is necessary to change the way of promoting investment. 

Local authorities need to be selective in accepting FDI, and not accept all proposed projects just to obtain high investment capital.

Transfer pricing

One of the ‘existing problems’ mentioned by experts is the tax incentive scheme.

Bui Ngoc Tuan from Deloitte Vietnam commented that for multinational groups, investment incentives are not the decisive factors to determine where to invest.

A representative of the Ministry of Finance’s Enterprise Finance Department pointed out that the concentration on tax incentives is one of the reasons behind tax evasion and transfer pricing.

The official cited a report of the ministry as saying that 44-51 percent of FIEs reported losses annually in 2012-2016. 

The number of FIEs reporting losses was higher than 50 percent in 2015-2016. Despite the big losses, the FIEs continued expanding their operation in Vietnam.

“FIEs operate well, but the amount of tax they pay is modest, which does not correspond to the resources they use. This is because FIEs exploit high investment incentives (land leasing fee, corporate income tax and personal income tax) to carry out transfer pricing,” the official said, adding that MPI needs to apply policies to fix the problems in taxation.

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Thanh Mai