Economic expert Pham Chi Lan expressed concern over the necessity of offering maximum duration of 99 years for land leasing at SAEZs.
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Lan questioned the enterprises' risk of bankruptcy in a period of 10 or 20 years, for which who will be responsible for the land transfer process and change of use purposes afterwards.
Consequently, Lan stressed the importance of having a long term view in drafting policies , with a view to avoid the dilemma of "enterprises leasing land for 99 years but being bankrupted in 10 years and then transfer land using right for other partner."
Besides, the 99 year - duration for land leasing, according to Lan, will be beneficial only to real estate firms, while in other business fields, the product and production life cycles are much shorter.
Tax incentives and long duration of land leasing to attract investors are obsolete after 30 years of attracting foreign direct investment (FDI) in Vietnam, Lan continued. "Vietnam could be considered a success story after 30 years of attracting FDI, however, there remain shortcomings of preferential policies, such as transfer pricing, tax evasion and fragmented investment."
Additionally, countries are exposed to risk of robot replacing human in labor-intensive fields, so that those fields will come back to developed countries. Vietnam, therefore, should understand the nature of these fields in a modern world and offering suitable preferential treatment.
Lan raised the question that the coverage of the incentives is lengthy and scattered with over 100 business field, which could potentially cause difficulties in management. Lesson from other countries showed that SAEZs should only offer preferential treatment in priority fields.
Over-the-top tax incentives could also cause unfair between foreign enterprises at SAEZs and the private sector, along with other issues such as transfer pricing and tax evasion.
According to a report from the General Department of Taxation, 720 out of 820 FIEs in Vietnam engaged in tax fraud in 2013 and were ordered to pay nearly VND400 billion (US$19 million) in back taxes and penalties.
Astonishingly, among all economic groups, the FDI sector has the highest number of enterprises reporting losses, the Vietnam Chamber of Commerce & Industry (VCCI) wrote in its annual Vietnam business report released on December 4, 2017.
In the 2007-2015 period, despite about half of FIEs reporting losses, in which many reported losses for a number of years in succession, the majority still planned for production expansion; a sign of potential transfer pricing, the report noted.
A recent report from VCCI released on March 22 said the rate of profitable FIEs in 2017 was at an all-time low, of 54.3%, while 37.9% reported losses; also a new record.
Nguyen Thu Huong, senior Program Manager of Governance at Oxfam in Vietnam in an interview to Hanoitimes, suggested the government should prevent tax incentives from becoming scattered and fragmented. Tax holidays - which account for the highest proportion of forgone revenue - need to be restricted.
Several countries have gradually phased out tax incentives as the focus of their tax policies shifted towards tax equity and neutrality, she added. In 2008, China abolished most tax incentives offered to FIEs, such as tax holidays of 3-10 years and lower CIT rates of 24, 15, and 10%.
"Moreover, the experience of developed countries show that tax incentives based on profit do not influence capital inflows into the economy," Huong continued. Credible investors will decide to invest regardless of preferential policies, which are seen as a "bonus".
