~ Le Viêt Nam, aujourd'hui. ~
The Vietnam News

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Rise in Vietnamese taxes irks foreign investors

BANGKOK - Vietnam's decision to raise the standard corporate tax rate for foreign companies, and to eliminate concessionary rates for investment in much of the country's south, has caused a furore among international business groups and provincial officials, who are warning the move could discourage fresh foreign direct investment.

Vietnam's Communist authorities recently lowered the standard corporate tax rate for domestic companies to 28 per cent from 32 per cent, to stimulate growth and boost job generation.

But Hanoi simultaneously raised the corporate tax rate for foreign companies to 28 per cent, up from 25 per cent, although the higher rate will only be imposed on existing investors after their current licences expire, or on new projects they undertake. The government justified the tax rise, which took effect on January 1, by saying it would create a level playing field for foreign and domestic firms. But analysts argue the move offers more of an advantage to existing foreign investors than new entrants into the market.

"It really discourages new investment into Vietnam," said Frederick Burke, an attorney at Baker & McKenzie in Ho Chi Minh City."Why would anyone come in here when, from day one, they will suffer a 3 per cent tax disadvantage as against their competitors, just because their competitor got here before you?"

Meanwhile, local officials in 17 southern provinces are complaining that prospective investors are turning away after learning they would no longer be eligible for special corporate tax breaks, initially offered to bring jobs and investment to underdeveloped areas.Vietnam's south has grown rapidly, prompting Hanoi to rule that tax concessions are no longer necessary to lure investors to the area. But at a heated meeting last week, officials from the region appealed for a rethink.

In another move with serious repercussions, Hanoi has also decided that multinational companies' representative offices will be treated as permanent establishments, giving rise to new tax exposure for the parent companies, if they sell items into Vietnam.While the government has yet to clarify how the policy will be applied, Mr Burke said it could "vitiate a lot of the gains the Americans had made in lowering duty rates" on imported items through a bilateral trade agreement with Vietnam.

* Japanese carmaker Toyota said yesterday it had been forced to lay off 125 of its 650 workers in Vietnam since local car sales had been hit by punitive new taxes. Demand for new cars in Vietnam had dropped by around 50 per cent year-on-year.

By Amy Kazmin - The Financial Times - March 04, 2004


Toyota lays off 20 pct of Vietnam workforce

HANOI - Vietnam's biggest Japanese car assembler, Toyota Motor Corp, said on Wednesday it had laid off nearly 20 percent of its workforce in the country because of a tax hike that has hit sales. From March 1, Toyota shrank its Vietnam workforce to 545 from 670.

The firm, which controls about 26 percent of the country's auto market, became the first among 11 foreign car makers in the country to slash jobs after new taxes of up to 24 percent on car sales came into effect this year.

"We have to let people go because of the shrinkage in sales," said an official from the firm, which operates in a joint venture with a Vietnamese partner. Sales figures for February were not available but company officials were quoted by state media as saying January-February sales dropped 50 percent from a year earlier. The firm sold 667 vehicles in January this year while sales for the whole of 2003 stood at 11,769 units.

Foreign auto makers have said they expect to almost halve production in 2004 to a combined 22,000 cars as the new taxes squeeze demand. In May last year, the communist government slapped the special consumption tax on locally assembled cars along with a 25 percent tariff on imported auto parts from January this year.

The taxes and duties rise until 2007, when the special consumption tax will reach 80 percent for automobiles with fewer than five seats. Ford and General Motors Corp protested the moves, which Hanoi said were needed to offset falling revenue in 2006 when it joins the ASEAN free trade agreement.

Vietnamese buyers, scrambling to beat the higher ticket prices this year, sent car sales surging 59.4 percent in 2003. Foreign car makers say they employ more than 7,500 workers. They have warned that if the higher taxes are not repealed, investment in the sector will drop to $1 million by 2007 from previous projections of $18.7 million.

Reuters - March 3, 2004