Oct 16, 2012

Vietnam - Policy changes irk foreign firms

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Some foreign-invested enterprises are worried about changes to investment incentive policies.

Company leaders say they will badly impact on the business environment and the ability to attract more investors to Vietnam. The story of Norfolk Hatexco Garment Joint Stock Company is a typical example for many foreign-invested enterprises (FIEs) now entangled by the changing investment incentive policies.

As an FIE operating in garment sector and using more than 1,500 workers Norfolk Hatexco, which was granted an investment license in 2002 with operation duration of 30 years, contends it is required to only pay corporate income tax (CIT) of 10 per cent of its profit each year. It would also enjoy CIT exemption in four years from the first profit-making year and a 50 per cent CIT reduction for the next four years.

However, Hanoi Department of Taxation has re-defined CIT incentives for some FIEs. Pursuant to current regulations with many changes in conditions to enjoy tax preference, the department adjusted Norfolk Hatexco’s tax obligation.

Specifically, the company will have to pay CIT rate of 15 per cent for 12 years since 2003 instead of 10 per cent during the whole life of its project from 2003 as regulated in its investment license. In addition, it will also enjoy tax exemptions in the first two years from the first profit-making year, as well as a tax rate of 15 per cent over the next three years instead of tax exemption for four years, followed by a reduction in the next four years with the rate of 10 per cent as initially.

Norfolk Hatexco general director Kwok Hai Sing said Hanoi Department of Taxation should stick to its original agreement with Norfolk Hatexco. “Investment preferences under investment licence are commitments of the government to foreign investors in the process of doing business in Vietnam,” Sing said. The Investment Law issued in 2005, Sing said, clearly stipulated the proper course of action to ensure investments.

Sing proposed the General Department of Taxation and relevant agencies to consider and address reasonably such issues to ensure business climate for FIEs operating in Vietnam.

Meanwhile, R.K Marble Vietnam said it was also being hurt by changes in investment incentives.

Under its investment licence granted by Yen Bai province’s People Committee dated January 11, 2006, the company would be exempted from CIT in the first four years of operation, and only have to pay 5 per cent of CIT in the next seven years and 10 per cent of CIT in the following four years.

Tran Ngoc Hung, chief of R.K Marble Vietnam’s Human Resource Department, said after changes of investment incentives policy, the company was now wondering if it would be ensured of incentives included in its investment licence.

Silver Shores Investment and Development Company, which has sent its proposal to the MoF many times to continue enjoying tax incentives as regulated in its investment license, is also among the FIEs ensnared by investment incentives changes. In 2006, when Silver Shores was granted the investment certificate, the company enjoyed import tax exemption for some imported goods under Decree 149/2005/ND-CP which guides the execution of the Law on Import Tax and Export Tax. This meant the company met the two import tax exemption conditions.

But in 2009, the MoF released Circular 79/2009/TT-BTC effective from June 2009, which made enterprises choose only one among two import tax exemption conditions to enjoy.

Silver Shores’ representative said it was unreasonable. Under the 2005 Law on Foreign Investment, the Vietnamese government must ensure foreign investors’ legitimate rights that might be affected by changed in laws. Furthermore, under the Law on Promulgation of Legal Documents of Vietnam, the highest legal document is applied in disputes. Therefore, the preferential tax treatment under the Law on Import Tax and Export Tax should still apply, the Silver Shores representative said.

The company has been waiting for the MoF’s feedback to its proposal. If Circular 79 is applied instead of its previous regulations, the company would have to pay heavy import taxes.

Nguyen Trang | vir.com.vn

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