Foreign firms report losses, but keep expanding: experts want incentives reviewed

By Dat Nguyen March 1, 2019 | 07:00 pm PT

Vietnamese employees welding at an FDI automotive plant in the northern province of Hai Duong in Vietnam. Photo by AFP

Half of all foreign-owned businesses are making losses yet aggressively expanding, and so the government needs to reconsider its incentives, experts said.

A report by the Ministry of Finance released at a recent meeting said 52 percent of FDI businesses reported losses for the last three years, indicating signs of transfer pricing abuse.

Transfer pricing refers to the prices reported by a company when transacting intra-company business, an obvious way to show lower profits to evade taxes.

Nguyen Thi Hong, Deputy Governor of the State Bank of Vietnam (SBV), said at the conference that there are 140 firms in the country with loans of at least four times their equity, and all of them are foreign-owned.

Some of them have loans 100 times their equity such as Samsung Display and Singapore’s CapitaLand Tower, she said.

Vietnam offers incentives to attract foreign investment like income tax and export-import tariff breaks and land incentives.

Some only have to pay income tax of 10 percent, while local companies could be taxed at 20 percent, the report pointed out.

Vietnam has been seeking FDI in the central region since it was underdeveloped compared to the north and south.

But in recent years development in the region has picked up pace thanks to new airports, seaports and highways, Minister of Finance Dinh Tien Dung said at the conference. Therefore, the government needs to reconsider its incentives to FDI firms, he said.

But he admitted the country needs investment in places like the Central Highlands and the northern mountains.

Deputy Prime Minister Vuong Dinh Hue said Vietnam needs a tax system to curb transfer pricing abuse.

The country has been focusing on FDI for over 30 years, but the downside of FDI such as transfer pricing fraud, pollution and failure to transfer technology to local businesses is causing local authorities to consider new policies for FDI attraction over the next decade.

There are some 21,400 foreign firms in the country, or 3 percent of the total number of businesses, according to the Ministry of Finance. They account for over 70 percent of Vietnam’s exports.