According to Prof. Dr. To Trung Thanh of National Economics University (NEU), external economic activities will remain the main pillar of Vietnam’s economic growth in the short term. Specific solutions and appropriate investment incentives are therefore needed to attract more foreign direct investment (FDI).

Prof. Dr. To Trung Thanh (NEU).

Could you explain more clearly why external economic activities will remain the main pillar of Vietnam’s economic growth in the short term?

Except for countries that have reached a certain level of development and whose domestic business sectors are sufficiently strong, countries in the early stages of development all rely on external economic activities—exports and FDI—as a foundation and support for development.

Vietnam is no exception. Domestic private enterprises account for the majority of businesses, but 97% are small, medium-sized or micro enterprises, operating primarily in trade, services, wholesale and retail, and are not strong enough to serve as a pillar. Meanwhile, the FDI sector consists mostly of large enterprises concentrated in processing and manufacturing, accounting for over 70% of total export and import turnover.

Accordingly, the Politburo’s Resolution No. 50-NQ/TW, dated August 20, 2019, on orientations for improving institutions and policies and enhancing the quality and effectiveness of foreign investment cooperation through 2030 affirmed that the FDI sector is an important integral part of Vietnam’s economy. It is encouraged and supported in developing over the long term and in cooperating and competing fairly with other economic sectors.

The Resolution also calls for proactively and selectively attracting and cooperating in foreign investment, with quality, efficiency, technology and environmental protection as the primary assessment criteria. Priority is given to projects featuring advanced, new, high and clean technologies, modern management, high added value, spillover effects and connections to global production and supply chains.

Would you say that the results after five years of implementing Resolution No. 50-NQ/TW have been positive?

Excluding the COVID-19 pandemic period, when almost all economic activities worldwide were shut down, Vietnam’s results in attracting FDI can be described as very encouraging. In 2023, Vietnam attracted 3,188 FDI projects with total registered capital of USD 20.19 billion, up 56.6% in project numbers and 62.2% in registered capital from the previous year. Of this, processing and manufacturing attracted USD 15.85 billion, accounting for 78.5%.

In the first four months of this year, an additional 966 FDI projects registered to invest in Vietnam, with total capital of USD 7.11 billion, up 29% in project numbers and more than 73% in registered capital compared with the same period in 2023. FDI enterprises disbursed USD 6.28 billion in the first four months, the highest figure for the same period in the past five years.

External economic activities will remain the main pillar of economic growth in the coming years, with the FDI sector playing an increasingly important role. In particular, in 2024, the Government identified economic growth as its number one priority. The FDI sector’s growth momentum continues, as Vietnam is still considered to have substantial potential to attract international investment flows amid the shift in global supply chains, particularly in certain high-tech fields and semiconductor chip manufacturing…

However, Vietnam has yet to introduce specific mechanisms and policies for FDI enterprises subject to the global minimum tax. Is this why Microsoft and Nvidia have turned to other countries in the region instead of investing in Vietnam as they had previously announced they would?

The minimum tax directly affects the interests of 122 FDI enterprises investing in Vietnam that are currently receiving tax exemptions and reductions and have effective tax rates below 15%. Vietnam’s tax incentives for FDI enterprises are no longer effective, which could affect the overall investment environment.

However, we have not yet comprehensively assessed whether the incentive system needs additional measures to encourage investment, including corporate income tax incentives and non-tax measures, to provide alternatives following the introduction of the minimum tax. This means studying other appropriate investment incentives to retain existing foreign investors and attract new ones to Vietnam, while also strengthening the position of current investors.

In your view, what policies are needed to attract major investors—the “eagles”—to establish operations in Vietnam?

ASEAN countries that receive large capital inflows are urgently studying new policies to adapt to the global minimum tax. Singapore and Thailand have introduced a range of additional policies to adapt their FDI attraction efforts to the new context. Ministries and agencies must therefore focus on studying other countries’ experience in implementing the minimum tax, as tax incentives are no longer a competitive advantage for Vietnam.

Implementation of the minimum tax is expected to generate an additional VND 14,600 billion in annual budget revenue. An Investment Support Fund should therefore be established soon using this additional revenue and other lawful revenue sources. The Investment Support Fund must be managed and used appropriately and for its intended purposes to stabilize the investment environment, encourage the attraction of strategic investors and multinational corporations, and support domestic enterprises in certain sectors where investment needs to be encouraged.

In addition, mechanisms are needed to provide further support to enterprises by increasing deductible expenses when determining income subject to corporate income tax. These include spending on initial training and retraining of human resources, particularly high-quality human resources; higher depreciation allowances for fixed assets to help accelerate the recovery of investment capital; research and development costs; spending on equipment investment, scientific research, technology development or technology transfer; and spending on environmental protection and green growth…

Author: Manh Bon/ baodautu.vn

Link: https://www.tinnhanhchungkhoan.vn/can-co-uu-dai-dau-tu-phu-hop-de-tang-thu-hut-fdi-post344865.html

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