Tax reform passed by the US Congress at the end of last year may affect Vietnam’s economy as US investors are likely to send their investment back home, where the corporate income tax (CIT) rate has been slashed, Vietnamese economic experts have warned.

The sweeping tax reforms, signed into law by President Donald Trump on December 22, include reductions in the CIT rate from 35 per cent to 21 per cent and a minimum of 10.5 per cent rate on any foreign profits US companies send home.

The tax overhaul should encourage corporations to relocate or build new operations in the US instead of overseas, where the CIT rate is often lower.

The US Government also hopes that US companies will repatriate their foreign cash piles given the attractive 10.5 per cent tax rate.

Countries where US companies are doing business, including Vietnam, see those benefits as challenges for their respective economies, members of an economic advisory panel to Prime Minister Nguyen Xuan Phuc said in a recent report.

“US companies will transfer profits generated from operations in Vietnam back home rather than keeping the money here for re-investment,” said Mr. Vu Viet Ngoan, Head of the panel. “Vietnam’s economy will be impacted if many US corporations follow this trend.”

But the bigger concern comes from neighboring economies, not the US tax bill itself, Mr. Ngoan noted.

Many countries, including China, have begun to offer new tax incentives to keep US investors, “a trend Vietnam should keep a close eye on,” he said.

According to the advisory panel, China has “taken timely action” by offering tax exemptions for US companies if they retain their investment in the country, while at the same time enacting new measures for those who want to repatriate their investment.

“Vietnam should keep watching developments in China to be able to respond timely, even though there are still not many US investors here,” Mr. Ngoan said.

Upon receiving the report from the advisory panel, Mr. Tran Dinh Chieu, Member of the National Assembly’s Finance and Budget Committee, said Vietnam should pay due attention to the warnings.

“The problem should be taken into serious consideration despite Vietnam’s CIT rate being lower than in the US, at 20 per cent and as low as 10 per cent for foreign businesses eligible for preferential treatment,” Mr. Chieu said, advising the government to review the country’s tax policies and try to reduce “unofficial fees” and petty corruption to retain foreign investors.

Earlier, Prime Minister Phuc asked ministries and relevant sectors to study the effects of the US tax reforms on Vietnam. He has also assigned the Ministry of Industry and Trade to coordinate with relevant ministries and sectors to monitor policy responses of countries around the world, to assess the impacts on Vietnam and help it respond appropriately and in a timely manner.

“It is necessary to review the products Vietnam exported to the US, especially those with of raw materials and components imported from China, in order to provide warnings and guide enterprises when the US imposes anti-dumping duties on these products,” the Prime Minister said.

VN Economic Times