Panasonic Life Solutions Vietnam in Vietnam - Singapore Industrial Park, Binh Duong province. (Photo: VNA) The move comes amid concerns that this measure might undermine the competitiveadvantage of developing countries in attracting foreign investment throughoffering tax incentives.
The global minimum tax was Pillar Two of the Organisation for EconomicCo-operation Development (OECD)’s base erosion and profit-shifting (BEPS)framework.
To date, the solution drew the participation of over 140 countries andjurisdictions, including Vietnam, which aimed to reform international taxationrules and ensure that multinational enterprises pay a fair share of taxwherever they operate through the establishment of a global minimum effectivecorporate tax rate of 15% for those with annual revenue of 750 million euros,starting from 2024.
Do Van Su, Deputy Director of the Ministry of Planning and Investment’s ForeignInvestment Agency, said the global situation was changing rapidly withunpredictable and complicated developments, negatively affecting the economicprospects and budget revenues of most countries.
In addition, the rapid development of information and technology and theemergence of new economic models allowed multinational companies to takeadvantage of policy loopholes to avoid tax obligations through transferringprofits from countries with a high tax rate to counties with lower rates, ortransfer pricing. In addition, the competition in attracting investment amongcapital-importing countries was in a race to the bottom, he said.
In Vietnam, tax incentives were being used as a financial leverage tool toinfluence investment trends. Vietnam’s corporate income tax incentives wereconsidered attractive compared to other countries in the region.
Specifically, the common corporate income tax was 20%, higher than the globalminimum tax rate. The preferential rates of 10%, 15% and 17% were applieddepending on the industries, sizes and locations of the investment. Notably,some investors were given special rates of just 5%, 7% and 9%. Other incentivesincluded tax exemption and a 50% reduction.
When the global minimum tax came into force, tax incentives would no longergive Vietnam a competitive advantage in attracting investment, Su said. Thisrule, moreover, affected the management of existing foreign-investedenterprises.
This fact required Vietnam to raise solutions to adapt to the global minimumtax and develop new investment promotion policies.
According to Takeo Nakajima, Chief Representative of the Japan External TradeOrganisation (JETRO) Hanoi, when investing in a country, an investor wouldconsider a number of factors, especially tax incentives.
The implementation of the global minimum tax rate would have a direct impact onthe business operation, thus, it was important for Vietnam to early raisepolicies to maintain the attractiveness and adapt to the global minimum tax.
Besides, the investment environment and market growth potential were amongother factors.
He cited findings of a survey by JETRO that 24% of participant enterprisesfound Vietnam’s investment environment attractive in terms of tax but around 60%said, like some countries in ASEAN, the implementation of tax policies in Vietnamwas not really effective.
Predicting that the capital flow from small and medium-sized enterprises wouldincrease, he said Vietnam should maintain the tax incentives for those who werenot subject to the global minimum tax.
While corporate income tax incentives were no longer an advantage, Vietnamcould not delay the formulation of other policies to attract foreigninvestment.
Yasuhisa Taninaka, from the Japanese Chamber of Commerce and Industry in Vietnam,said that enterprises would see the total cost when investing in Vietnam, notonly corporate income tax.
He proposed reductions in personal income tax rates would be put intoconsideration as the rates remained high in Vietnam.
A representative from the European Chamber of Commerce in Vietnam (Eurocham)said that enterprises were aware that the global minimum tax was a global game,but enterprises wanted to know how countries, including Vietnam, changed theirpolicies so that they could distribute their tax payable.
He cited Eurocham’s 2022-23 Whitebook that 70% said Vietnam could increaseforeign investment by reducing roadblocks in terms of administrativeprocedures, 53% suggested improving infrastructure, 35% suggested improvinghuman resources and 47% suggested easing visa barriers for foreign experts.
Deputy Minister of Planning and Investment Nguyen Thi Bich Ngoc said that Vietnamwould amend the investment attraction policies to ensure the compatibility tothe global minimum tax and minimise the impacts on enterprises, pledging aharmonisation of benefits and a favourable environment to encourage investmentin Vietnam in line with the country’s socio-economic development.
At the Vietnam Business Forum on last weekend, Prime Minister Pham Minh Chinh saidthat the Vietnamese Government was consulting other countries to develop anappropriate policy on the global minimum tax and striving to issue it this yearto create opportunities for foreign companies to operate and contribute more inVietnam without affecting interests of investors.
Previously, the Government asked relevant ministries to submit a comprehensivereport about the global minimum tax within March.
A working group in charge of studying the tax was established in August 2022./.
VNA
