Vietnam Tax Policy Pleasing Investors

 

At present, Vietnam’s average value-added tax (VAT) of 10 percent and corporate income tax (CIT) of 22 percent (25 percent in previous years) is in line with many of its competitors. China, Indonesia and Malaysia all have average CIT rates of 25 percent. The Philippines and Myanmar have slightly higher CIT of 30 percent and VAT 12 percent. For small and medium size FDI firms with annual revenue lower than US$952,000, Vietnam’s CIT tax rate is even more attractive (20 percent) thanks to a 2013 change in the Law on Corporate Income Tax. Regarding expropriation risk, investors are far more confident about their investments in Vietnam than competitor countries. 76.4 percent of respondents argued that Vietnam has less expropriation risk than China, and 71 percent ranked Vietnam ahead of Thailand, reflecting concerns about ongoing political risk in the country. These numbers show remarkable consistency between 2013 and 2014, suggesting that this conclusion is not coincidental.

 

Respondents indicated that policy influence, the ability of FIEs to have a say in the drafting and implementation of laws and regulations that affect their business, is higher in Vietnam than any of its competitors, particularly neighbouring Cambodia and Laos. This score likely is a function of both the strong presence of investor groups, which advocate for improvements in the business climate, and the multiple forums available for them to interact with policymakers. Tax authorities hold annual tax and customs dialogues with businesses. Big foreign investors like South Korea and Japan have their own forums or dialogues on tax policies.

 

Policy uncertainty shows improvement over 2013. FIEs believe Vietnam has greater stability and predictability than almost all of its competitors. These findings are critical, as FIEs value the ability to predict changes in laws well into the future, allowing them to make long-term strategic plans. Moreover, investors in high-tech goods and services value policy stability even more, as it often takes them longer to be profitable and their investments have greater inherent risks. 94 percent of investors report Vietnamese politics to be more stable than potential competitors, including China (20.5 percent), Thailand (18 percent), and Cambodia (13.9 percent). Each of these shares has increased from 2013. The uptick itself represents an important marker of Vietnam’s developmental standing. Vietnam is no longer the darling of the international investment community as it was between 2007 and 2010, and it must now compete against traditional regional destinations for FDI along with several emerging competitors such as the Philippines and Laos.

 

However, FIEs evaluate Vietnam to be significantly less attractive when it comes to corruption, regulatory burdens, quality of public services (such as education, health care, and utilities provision), and the quality and reliability of infrastructure. On infrastructure, investors place Vietnam in roughly the same level as its neighbours Cambodia and Laos. Surprisingly, however, Vietnam appears to rank even worse than every possible competitor when it comes to corruption and the regulatory burden. This is a major factor for some investors considering investment locations. Only 17 percent entered Vietnam as part of a multi-country investment strategy. This is perhaps a warning to Vietnam when its policy reform public administration is being strengthened and intensified.