EPZ enterprises fear they won’t be competitive without tax incentives

Under the Vietnam’s WTO’s commitments, Vietnam will have to remove the corporate income tax incentives from January 1, 2012. This has raised a big worry among export enterprises that they may be uncompetitive in the world market.

Canned tuna products for export to the US, Japan and the EU of Toan Thang Company in Binh Chieu IZ in Thu Duc district in HCM City, now have to compete fiercely with high grade products from regional countries. In Japanese market, for example, Thai tuna can enjoy the preferential tax rate of zero percent from 2012, while the imports from Vietnam bear the tax rates of 7.2-9.6 percent.

However, right from now, Vietnamese key export items such as garments, footwear, wooden furniture, electronics and toys to the US and EU markets have been put under a hard pressure because of the increasing production costs, which has pushed the sale prices up.

Nguyen Kim Truc, General Director of the Kim Truc Porcelain Company in Tan Binh IZ in HCM City, which specializes in making porcelain toys and technical devices with small sizes for export to the US and the EU, complained that the company has to face many difficulties.

She said that though the export markets are stable, while there are not many rivals in the same field, but the fluctuating dong/dollar exchange rate has made it unable for the enterprise to control its business plan. Meanwhile, foreign partners always place order once a year at the fixed prices.

Truc has also said that the increasing higher input costs, including the material prices, electricity prices, fuel prices, labor cost and capital cost all have made the burden on the enterprise heavier.

Wang Cheng Yi, General Director of Toan Thang Company, said that the labor shortage and low productivity both have also caused a headache to the enterprise.

“Due to the low labor quality, we cannot run machines at full capacity, which has influenced the delivery plan,” he complained. “If we can enjoy the preferential import tariff on the Japanese market, the pressure would be eased”.

Sharing the same view, Sugihara Noritaka, Director of Tsuchiaya TSCO in the Vietnam-Singapore IZ in Binh Duong province, which mainly targets the Japanese market, also said he wishes to continue enjoying tax incentives after January 1, 2012, saying that this would help maintain the competitiveness of Vietnamese enterprises in comparison with regional enterprises.

Sugihara Noritaka also said that the current mechanism on selecting preferences has shown problems.

The Dispatch No 2348 dated March 3, 2009, of the Ministry of Finance stipulates that from 2012, the enterprises, which are now enjoying corporate income tax (CIT) incentives because they can meet the requirements on the percentages of export products, and now can meet other requirements, will be able to enjoy CIT for the time left.

In reality, there are not many enterprises which can meet the requirements to be listed as the subjects to investment incentives as stipulated in the Decree No 108, which guides the implementation of the Investment Law. This means that by early 2012, a lot of enterprises, which are enjoying CIT preferences, will not be able to enjoy the preferences any more.

The Foreign Investment Agency FIA under the Ministry of Planning and Investment is compiling the draft document which is expected to amend the Decree 108.

Do Nhat Hoang, FIA’s Director, has reassured the enterprises that the legal document will comprise of the provisions which go in accordance with WTO rules, but it will be designed in a way which allows to ensure the optimum benefits for investors.