Vietnam should apply global minimum tax and change policies

Can Van Luc, an economic expert of BIDV Training and Research Institute made the statement at a conference on global minimum tax on June 14.

Luc said currently, Vietnam's actual tax on foreign businesses is about 12.3 per cent. He also added that the increase from 12.3 per cent to 15 per cent is not much.

"We need to give foreign businesses a choice, either they accept to receive no income tax incentives and apply a general tax rate of 15 per cent, or they continue to enjoy the current tax incentives and pay the remaining tax in the place they set up the parent company", he said.

If multinational companies choose to follow the second option to enjoy tax incentives in Vietnam, the Government should establish an interdisciplinary working group, led by a Deputy Prime Minister, with the purpose is to issue synchronous and smooth solutions among ministries and sectors, he said.

Besides, the Government should have policies, allowing businesses to increase some expenses such as depreciation costs for research or high technology to reduce taxable levels, he said.

There should have more incentives for land fund and social security policies, he said.

Also at the conference, the General Department of Taxation and economic experts believed that Vietnam should change its policies to attract investment in the direction of improving the business environment and labour force.

Deputy Director General of the department Dang Ngoc Minh said that Vietnam has been an "investment paradise", not a "tax paradise" in the eyes of world investors.

Minh said Vietnam's corporate income tax is currently 20 per cent, five per cent higher than the proposed global minimum tax rate.

However, Vietnam is offering many preferential tax rates for foreign projects such as preferential tax rates from 5 per cent up to 15 per cent annually and tax exemption and reduction for a limited time (up to 9 years), he said.

Under a survey, Vietnam's actual tax on foreign businesses is about 12.3 per cent, he added.

If the global minimum tax rate of 15 per cent is applied as proposed, our incentives for foreign businesses will no longer exist, he said.

Compared with some countries in the region, the actual tax revenue of Vietnam is higher than that of Thailand (9.5 per cent), Singapore (7 per cent) and Indonesia (11.5 per cent), he said.

Besides, Vietnam's tax incentives are applied mainly to the group of 3 per cent of large enterprises, he said.

Some large projects with long-term operation, even receive preferential tax rates of about 2.75-5.95 per cent, he added.

According to Minh, applying the global minimum tax will reduce the incentives for foreign investors in Vietnam.

At the same time, new businesses and satellite businesses will all consider when investing in our country, he said.

"The thing that worries me most is that the balance of tax payments will be affected. This is because large and multinational enterprises will no longer prioritize storing foreign currency in Vietnam," he said.

On July 1, 2021, member countries of the Organization for Economic Co-operation and Development (OECD) agreed to impose a minimum tax rate on a global scale. The G20 Finance Ministers also approved this agreement in mid-July 2021. In October 2021, a 15 per cent tax rate was agreed by 139 countries.

Under the agreement, a global minimum rate of 15 per cent will be applied to companies with income of 750 million euros or more. The 15 per cent tax rate will not increase immediately, and small businesses are expected to be less affected.

Proponents of the global minimum tax idea want to reallocate more than USD 125 billion in profits from about 100 of the largest multinational companies on the planet, helping to reduce the need for countries to reduce taxes to attract investment and limit the transfer of profits abroad.

However, the global minimum tax is considered to reduce the attractiveness of developing countries, including Vietnam, when attracting Foreign Direct Investment (FDI).