Experts say that the biggest problem in
foreign direct investment (FDI) attraction now is not the continued decrease in
the registered and disbursed foreign invested capital, but the enigmatic big
losses of a series of FIEs in recent years.
The startling discovery
The big
losses do not reflect what Vietnam brings to foreign investors: cheap labor
force, tax incentives, young population and favorable export conditions.
International institutions also say that Vietnam is one of the three most
attractive destinations in Asia.
The
reports conducted recently by MPI show that 70 percent of FIEs report loss
every year. Other FIEs make profit, but the ratios of profit on turnover are
modest. While the enterprises can operate in favorable conditions, their
contribution to the state budget through tax payment is relatively low at 9-10
percent of the total receipts of the state budget.
An
inspection tour conducted on 88 FIEs in 2007-2009 found out that 90 percent of
the enterprises reported losses. Meanwhile, a report by the General Department
of Taxation (GDT) shows that 56 percent of FIEs had reported losses for three
consecutive years by 2009.
HCM
City is considered the most bustling commercial hub in the country. However, 60
percent of FIEs located in the city takes a loss every year. In Binh Duong
province, 50 percent of FIEs reported loss for the five year period of
2006-2010. In 2010 alone, up to 200 FIEs reportedly lost the stockholder
equity.
The
noteworthy thing--is that most of the unprofitable businesses are operating in
the key industries in Vietnam which can earn big money from exports, such as
garment, footwear and processing. Despite the big losses, the FIEs still
continue expanding their business.
In the
garment industry, while the companies in other economic sectors all make
profit, 90 percent of FIEs in HCM City reported loss.
It’s difficult to find fault with FIEs
“There
are 13,500 FIEs operational in Vietnam, 50 percent of which report loss or have
unpaid debts. Meanwhile, it is very difficult to approach the businesses,”
Hoang from MPI said.
“The
Ministry of Finance and relevant ministries many times discuss the issue and
then draw up detailed action plans. However, it seems to be more difficult than
previously thought to implement the plans,” Hoang added.
It is
obvious that FIEs are committing the transfer pricing, but it is not easy to
find out the proofs for the accusation, due to the limited staff, unqualified
enough officers, lack of experience and the imperfect of the legal framework.
“We do
not have the database about the material prices in the world market to conclude
that they evade tax. Meanwhile, FIEs always can show lawful invoices,” Hoang
explained.
“We are
sure that an import chip is priced at 10 dollars, but FIEs affirm that they buy
it at 12 dollars, showing the lawful invoices. In this case, we need to find
the proofs to show that the chip is valued at 10 dollars only,” he continued.
“Meanwhile,
it is really a difficult task. In general, foreign countries tend to protect
their businesses. Therefore, if Vietnam consults with the foreign agencies
about the prices, we would receive the answer that the real price is 12
dollars,” he concluded.
In the
latest news, MPI has submitted to the government a plan to fight against the
transfer pricing. However, Deputy Prime Minister Hoang Trung Hai, realizing the
complexity of the problem, has asked the Ministry of Finance to preside the
research on the issue.
Pham
Huyen
Business & Investment Opportunities
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