Vietnam should cut down FDI incentives in favor of local companies: MP

By Ngan Anh   October 31, 2017 | 07:26 pm GMT+7
Vietnam should cut down FDI incentives in favor of local companies: MP
Vietnam offers many land and tax incentives to attract foreign direct investment. Photo by Reuters/Kham

Lawmakers warn against preferential treatment for foreign invested companies, half of which declared losses from 2007-2015.

Vietnam offers many land and tax incentives to attract foreign direct investment (FDI), but the sector’s contribution to the economy is still limited, said delegates of the legislative National Assembly (NA).

Despite accounting for more than 70 percent of total export revenue, the sector’s contribution to the state coffers is estimated at 15-17 percent, delegate Pham Trong Nhan said at the ongoing NA’s session on Tuesday.

He was also concerned about transfer pricing by foreign enterprises, which hurts the state budget. Even though business is booming in Vietnam, up to half of foreign invested enterprises announced losses between 2007 and 2015.

According to Oxfam, a global charity that fights inequality, Vietnam faces annual losses of $170 billion due to transfer pricing, Nhan said.

The country should review existing policies, slash overly generous incentives for foreign investors, and offer local private firms equal treatment, Nhan said.

In Vietnam, foreign investors are exempt from corporate tax and get to use for free thousands of square meters of land in industrial parks for many years. Meanwhile, local firms find it hard to even get 100 square meters for their workshops.

“Why do we make it so difficult for local firms?”, he said, adding that FDI should support development of Vietnamese products instead of overwhelming local firms.

Earlier, at the ongoing session, NA delegate Truong Trong Nghia warned against the undue dependence on overseas investors. According to international norms, FDI should account for only 5 percent of gross capital formation, but in Vietnam, it now makes up 25 percent, which may pose risks to the economy.

Economic development cannot rely on foreign firms, only local ones, he said. Foreign investors could leave Vietnam for other markets when the country no longer has a competitive advantage.

Echoing him, Nhan added: “It is worrisome if GDP growth of a country depends on FDI enterprises.”

NA delegates are also worried about low rate of technology transfer of FDI projects, to the detriment of Vietnam, because most of them are labor intensive.

Official data shows Vietnam received an estimated $14.2 billion in foreign direct investment in the first 10 months of this year, up 11.8 percent from the same period in 2016.

FDI pledges for new projects, increased capital and stake acquisitions jumped 37.4 percent from a year earlier to $28.24 billion, according to the Ministry of Planning and Investment's Foreign Investment Department.

Vietnam’s FDI inflow this year is expected to hit a record high of $16 billion.