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The costs of attracting foreign direct investment
0.7 percent of GDP is whatVietnam has to pay to attract foreign direct investment (FDI).The figure was released by the research team under the Central Institute for Economic Management (CIEM) when reviewing the role of the policies on investment incentives and the impacts of the FDI on Vietnam’s national economy at a workshop held recently in Hanoi.
After many years of feeling happy about the high number of FDI capital and FDI projects, experts say, it is now the right time for Vietnam to reconsider the policies to attract FDI. They have also pointed out that the price that Vietnam has to pay for investment incentives become heavier and heavier.
Dr. Tran Dinh Thien, Head of the Vietnam Economics Institute, said that in the current conditions, when the FDI capital flow in the world changes its way, and now tends to choose the low-carbon emission technologies which allow to save energy, if Vietnam does not change its policies on investment incentives, it will become the destination for the investors who seek profit from the mismanagement of the country. The necessary changes, according to Thien, include encouraging domestic private enterprises to develop, settling technical infrastructure problems, choosing concrete investors instead of countries in general.
According to the research team, foreign invested enterprises have enjoyed the tax reductions of 10 trillion dong a year thanks to the policies on tax exemptions and reductions. The total sum of tax foreign invested enterprises have to pay was also lower than that of the domestic private enterprises (8.1 percent of total turnover in 2008 vs 17.28 percent).
Nguyen Tu Anh, a member of the research team, stressed that 72 percent of foreign invested projects have been enjoying at least one of the investment incentives. To date, there has been no official conclusion about the expenses to attract FDI and the benefit that foreign invested enterprises, which have enjoyed investment incentives, bring. However, it is clear that the scale of investment incentives is really big.
Anh also said that it is very difficult to measure the benefit that foreign invested enterprises has brought, if considering the inconsistency and unclear targets of investment promotion policies.
Currently, the investment laws stipulate 26 fields subject to special investment incentives (Group A), and 53 other fields subject to investment incentives (Group B). Meanwhile, the tax laws stipulate 24 fields belonging to group A and 39 fields belonging to group B.
Most recently, the Decree 61 on investment incentives applied to the investment in agriculture stipulates that group A includes 28 agricultural fields. Besides, the list of the localities offering investment incentives sees the absence of only nine cities and provinces.
A lot of types of investment incentives have been offered, including the corporate income tax and import-export tax exemptions and reductions, the land leasing fee reductions. Foreign invested enterprises now enjoy 4-year corporate income tax exemption, and 50 percent tax reduction for the next nine years. The enterprises located in special areas can enjoy the preferential tax rate of 10 percent within 15 years. It is clear that the state budget has to bear big expenses in order to implement the policies.
Meanwhile, the research team has discovered that most of foreign invested enterprises are second-generation subsidiaries of foreign big groups and they do not have the licenses to own independent technologies. “These foreign companies account for 94 percent of the total number of companies. They do not have technological capability and they also do not want to transfer technologies, while this is where Vietnam’s interests lie, the research team concluded.
“To date, only four multinational groups have made direct investment in Vietnam. This limits the opportunities of Vietnamese companies to access high technologies,” Tu Anh said, adding that the situation has increased the risks of the “price transfer” carried out by foreign invested enterprises in Vietnam.
Moreover, with the incentives given to the projects that use at least 500 workers and the special incentives given to the projects that use over 5000 workers, the wish of Vietnam to drive FDI to the business fields which do not abuse the labor, will never be implemented. Especially, the policies have been hindering the efforts to improve the productivity.
Le Dang Doanh, a well known economist, stressed that it is necessary to look at investment incentives and the contribution by foreign invested enterprises to the national economy in different periods, and every policy only fits a certain stage of development. Vietnam had to offer big incentives in the 1990s, when it needed to call for more investment, overcome financial crisis and create more jobs. However, these policies have become unsuitable when the national and international conditions changed.
vietnamnet, Dau tu
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