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Vietnam’s businesses should proactively respond to Global Minimum Tax (GMT)

The global minimum tax (GMT) rate will enable Vietnam to switch businesses to preferential investment status proactively to retain large overseas investors, while also supporting the development of small- and medium-sized enterprises in the domestic market.

 

This was the view expressed by economic experts at a conference on April 21 concerning the impact assessment and recommendations on policies for Vietnam's participation in the GMT proposal.


Nguyen Thy Nga, head of the Institute of Policy Administration and Development Strategy, said that in order to entice foreign direct investment (FDI) over the past few decades, countries have loosened investment regulations, including tax rates, resulting in a 'race to the bottom'. The established GMT of 15 per cent will put an end to this, and fundamentally change how multinational companies seek investment opportunities.


"Currently, Vietnam's corporate income tax rate is 20 per cent, higher than the proposed minimum tax rate. However, preferential tax rates are mainly applied to foreig-invested projects at 5-10 per cent for up to 15 years, with even tax exemption offered for a limited time. Therefore, the actual tax for foreign-invested enterprises in the preferential period is around 12 per cent on average," said Nga.


She emphasised that there is no evidence that tax incentives increase FDI in ASEAN countries. "Most of the current corporate income tax incentives do not aim to attract long-term investment capital, but rather compensate for shortcomings in governance and infrastructure, and to meet the short-term wishes of investors. Furthermore, tax incentives have even created an unfair investment environment for SMEs," Nga added.



While numerous countries around the world have agreed to implement the GMT rate from January 1, 2024, experts have said that Vietnam should quickly research and implement the Qualified Domestic Minimum Top-Up Tax (QDMTT) to collect additional taxes to contribute to the state's revenue and remain competitive in the foreign market.


In the longer term, the tax system and incentives should be reformed to avoid the negative impacts of the GMT, ensure the attraction of substantive investment, and limit activities that erode the tax base.


In addition, Vietnam should build a tax incentive system based on the opinions of businesses affected by the GMT rate to support and protect multinational enterprises investing in the country.


The institute also recommends that the prime minister's special GMT working group should speed up the impact assessment and develop a domestic legal framework related to its application that can ensure preferential policies for foreign investors in Vietnam. "At the same time, we should enhance national competitiveness, infrastructure development, and quality of human resources to level up Vietnam's business environment," said Nga.


Source: CCIPV / VIR

Pictures from VN Economy

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