Tax incentives cost Vietnam over $2 billion a year

Vietnam could use the money, which is approximately one percent of its GDP per year, to build 25 1,000-bed hospitals, Johan Langerock, tax policy expert at international non-governmental organization Oxfam, said at a recent development policy forum.

"When tax revenues from large companies fall, the value-added-tax (VAT) burden on ordinary people will have to increase or public services such as health and education will be cut," Langerock said. "Oxfam believes Vietnam can cut back on its tax incentives without compromising national growth or competitiveness."

Incentives on corporate tax rates, import duties, and personal income tax are seen as a method of attracting investment into Vietnam and foreign countries. But now, in the Association of Southeast Asian Nations (ASEAN), there is a race to the bottom on taxation, he said.

"ASEAN companies have been paying lower and lower tax rates over the past decade. In such a business environment, large companies with wealthy shareholders are getting more and more benefits, while essential public services for ordinary people do not receive the proper investment and development," he said.

However, Nguyen DucThanh, Director of the Vietnam Institute for Economic and Policy Research (VEPR) said: "If these incentives did not exist 10-20 years ago, would any businesses have invested in Vietnam, and if not, would Vietnam have been able to achieve its current economic targets?"

Although tax incentives will decrease budget revenue, this is an opportunity cost foregone, because without them it would be difficult for Vietnam to attract investment, reach growth targets and reduce unemployment, he added.

Vietnam charges a corporate tax rate of 20 percent; VAT applies at one of three rates (0, 5, and 10 percent) but most goods are taxed at 10 percent; and personal income tax is progressive up to 35 percent.