Vietnam fails to collect $170 billion in tax because of transfer pricing

Last update: 12:00 | 09/11/2017

VietNamNet Bridge - Experts estimate that foreign invested enterprises’ (FIEs) transfer pricing causes a loss of revenue of $170 billion a year to Vietnam and developing countries.


Pham Trong Nhan, NA Deputy from Binh Duong province

NA’s deputies have expressed concern about transfer pricing conducted by FIEs.

Pham Trong Nhan, a NA deputy from Binh Duong province, said the more FIEs take loss, the more they expand business.

Analysts have found that the list of the  1,000 biggest taxpayers in Vietnam in 2015 included 46 percent of FIEs, but the amount of tax FIEs paid accounted for 37 percent, and the figure is decreasing.

According to Nhan, 70 percent of Vietnam’s total export turnover is from FIEs. However, Vietnam cannot benefit from this because of FIEs’ transfer pricing.

Of the  1,000 biggest taxpayers in Vietnam in 2015 included 46 percent of FIEs, but the amount of tax FIEs paid accounted for 37 percent

Nhan cited an Oxfam report as saying that Vietnam, like some other developing countries, did not collect the $170 billion in tax because of transfer pricing.

Since FIEs conduct transfer pricing, the taxable income is low, and the amount of tax is inconsiderable. In case of FIEs reporting a loss, Vietnam cannot collect dong. 

He said that one of the goals Vietnam strives for when attracting FDI is technology transfer. However, a report says 80 percent of FIEs in Vietnam use medium level technology, 14 percent use outdated technology and only 5-6 percent use high technology. This explains why FIEs set up factories in Vietnam for assembling only.

In 2009, Vietnam ranked 57th in the world in the efficiency of technology transfer from FDI sector. But it fell to the 103rd position in 2014. 

“While Vietnam gives many investment incentives to FIEs, offering tax concessions, allowing to carry losses forward to following years, and applying the tax refund to encourage investment, it does not give this to Vietnamese enterprises,” he said.

The military telecom group Viettel has complained as MOF has rejected its claim for tax incentives like the ones given to Samsung.

Commenting about the tax collection, Eric Sidgwick, ADB’s Vietnam Country Director also said FIEs enjoy many tax incentives. It is still unclear how long FIEs can enjoy tax concessions.

As the state fails to collect tax from FIEs and the state budget is limited, MOF is trying to seek more domestic sources of revenue. It has proposed raising the VAT on consumer goods from 10 percent to 12 or 14 percent.

Vu Thanh Tu Anh from Fulbright University pointed out that the poor will suffer the most from the tax increase.


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