Policies to support and encourage investment attraction, especially foreign investment, are being reviewed and comprehensively evaluated by ministries and sectors. Many new forms of support for the business community are recommended to be applied to increase attraction and retain foreign partners.
| Capital sale to restructure portfolio Restructuring to capture export market |
Look straight at the bottlenecks and limitations
According to the Ministry of Planning and Investment, although Vietnam's preferential policies to encourage investment have been effective over the past three decades. Thanks to the completion of preferential tax, financial and land policies and the facilitation of procedures, foreign capital flows into Vietnam have continuously increased. The FDI enterprise sector, which accounted for an insignificant proportion, has become a sector contributing tens of billions of USD to the state budget every year.
However, Vietnam's investment incentive and support policies in recent years have also revealed many limitations. The most prominent of these is that these policy groups have only focused on income-based incentives, with almost no cost-based incentives. This, on the one hand, creates "loopholes" for businesses to carry out price shifting and income fraud, and on the other hand, has not really encouraged real investment activities with long-term benefits.
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| Innovation in investment incentive policies is expected to help retain and attract more multinational investors |
Also because of the lack of cost-based incentives, experts say Vietnam’s investment attraction policies are not keeping up with international practices. This reduces competitiveness in attracting investment in emerging industries such as semiconductor technology, electric vehicle manufacturing, hydrogen, etc.
Regarding the legal aspect, according to the Ministry of Planning and Investment, the biggest limitation of Vietnam's current investment attraction policies is that there are many regulations that have been stipulated in legal documents, but there are no specific instructions for implementation, so they have not had any effect in practice.
There are currently 7 forms of support, including support for infrastructure development inside and outside the investment project fence, support for human resource development, credit support, support for access to production premises, support for relocation of production and business establishments, support for technology transfer, support for information provision, support for research and development, which have been stipulated in the Investment Law 2020 (Article 18), but there are no specific mechanisms and instructions in sub-law documents. Therefore, when implemented, there are overlaps, lack of synchronization and unity.
In addition, tax incentives in investment attraction policies are stipulated in too many different tax laws. This causes significant difficulties and obstacles for investors in the process of implementing and applying incentives, while increasing compliance costs for businesses. Not to mention, with the application of global minimum tax from January 1, 2024, preferential policies on corporate income tax may no longer be meaningful, reducing the attractiveness to large FDI investors.
Increase in cost incentives and tax deductions
According to the World Bank (WB) recommendations, when developing investment incentive policies, countries should consider classifying investors' motivations, including the main motivations such as: resource seeking, market seeking, strategic asset seeking and efficiency seeking. In addition, countries also need to consider factors that influence investors' location decisions, such as political stability, investment incentives and policy predictability.
For Vietnam, WB experts believe that the strengths of political stability, strategic geographical location, and economic openness are highly competitive compared to other countries in the region. However, investment incentive policies need to be reformed in the direction of diversifying support forms, not relying too much on tax exemptions as before.
Experts also believe that Vietnam should issue innovative and selective investment incentive policies, giving more priority to investment projects in areas such as high technology, R&D, environmental protection, etc.
In the short term, urgent solutions are needed to offset the impacts of the global minimum tax and prevent the risk of investment shifting out of Vietnam by some large FDI investors. Meanwhile, in the long term, comprehensive incentive reforms are needed, which may not eliminate income-based incentives but should be applied in parallel and interspersed with cost-based incentive policies.
Recognizing these needs, the Ministry of Planning and Investment has also issued a draft Report on the overall review and assessment of investment incentive policies and sent it to ministries, branches and localities to synthesize opinions and recommendations. In particular, the Ministry of Planning and Investment suggests that it is necessary to consider and learn from the experiences of countries in the region such as China, Korea, Singapore, Thailand, Indonesia, Malaysia and India to develop and issue investment support policies through tax deductions and taxable income deductions according to the investment level of FDI enterprises.
Regarding the story of coping with the impacts of global income tax on investment attraction activities, the Ministry of Planning and Investment has also issued a draft Decree on the establishment of an Investment Support Fund from global minimum tax revenue. In particular, the Fund's support targets enterprises and investment projects in the high-tech sector with a capital scale of over VND 12,000 billion, revenue of over VND 20,000 billion/year, while ensuring the implementation of project capital of over VND 3,000 billion. According to the leader of the Ministry of Planning and Investment, the establishment of this fund is "correct and accurate", helping to balance the advantages of attracting investment, retaining and encouraging multinational investors in key areas that Vietnam is prioritizing to call for foreign investment.
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