"Private Enterprises don't pay attention to Corporate Income Tax Priorities": Survey

"Private Enterprises don't pay attention to Corporate Income Tax Priorities": Survey

The results of a study on corporate income tax priorities, which was released in Hanoi on November 5, show that private enterprises in Vietnam do not pay attention to the priorities.

The study was conducted by the Vietnam Competition Initiatives Project (VNCI) and the Economics Department of the Ho Chi Minh City National University via a survey of 140 private enterprises in Tien Giang, Binh Duong and Ho Chi Minh City, half of which have enjoyed corporate income tax priorities while the remainder don’t as yet. Dr Nguyen Dinh Cung of the Central Institute of Economic Management said that it was the first study on the impacts and effects of corporate income tax priorities for mobilising investment capital in Vietnam. This has been the first report on the effects of tax priorities on investment attraction (for domestic projects) since investment incentives were given to foreign-invested projects 20 years ago and domestic projects, ten years ago.

The study shows that when making investment decisions, enterprises pay attention to analysing infrastructure, human resources, ability to get access to material supplies and markets, local legal systems and the behaviour of local authorities. For enterprises, these are the most important factors, above corporate income tax priorities. According to Dr Cung, this is ranked seventh out of 14 factors impacting on private enterprises’ investment decisions.

Dr Nguyen Thi Canh at the Ho Chi Minh City National University said that only 14 per cent of enterprises said that they paid attention to changing conditions of their projects to enjoy corporate income tax priorities, mainly by increasing the number of workers and expanding the production scale, or relocating their production establishments into industrial parks. About six per cent of surveyed enterprises said that they would not invest without corporate income tax priorities. Meanwhile, up to 85 per cent of enterprises, which have enjoyed corporate income tax priorities, said that they would invest without these priorities.

In fact, it costs enterprises a great deal to get certificates for corporate income tax priorities. This has resulted in the fact that many companies no longer rely on priorities. For example, in Ho Chi Minh City up to 30 per cent of enterprises surveyed said that it cost them between VND 5 million (about US$316) and 15 million (about US$950) to qualify to enjoy priorities while ten per cent said that they paid between VND 15 million and 30 million (about US$1,900), according to their sizes.  Tax priorities cause losses of billions of Vietnam dong to the State budget.

Also according to the study, 87 per cent of enterprises said that a simple and unique tax policy for all investors, regardless of whether they are Vietnamese for foreigners would be better while only five per cent disagreed with the opinion. Many enterprises said that it cost them much more time and money to receive corporate income tax priorities than their tax, especially for newly established enterprises, they did not pay attention to applying for priorities even though they met all the conditions.

However, according to Pham Manh Dung, head of the Legal Department of the Ministry of Planning and Investment, it was a necessary step, contributing to the draft and issuance of the Law on Investment Encouragement and Protection expected to be adopted in early 2006. David Ray, deputy director of VNCI, said that it was still controversial for the international business community. Those who support the opinion said that the policy was necessary for enterprises to compete effectively with their rivals from other countries and territories while helping minimise disadvantages of some localities to attract investment.

• Kim Phuong