Implementing global minimum tax: An opportunity for Vietnam to attract high-quality FDI capital

Improving the connection between Vietnamese enterprises and FDI enterprises is an important goal to attract more high-quality capital when Vietnam applies the global minimum tax. Illustration

End the race to the bottom on tax incentives

Assessing the situation of attracting FDI capital in the coming time, Dr. Nguyen Quoc Viet, Deputy Director of the Institute for Economic and Policy Research (VEPR), said that the Vietnam National Assembly's recent adoption of the Resolution on global minimum tax will affect more than 100 FDI enterprises operating in Vietnam. In Vietnam and in the future, many other FDI enterprises will also be affected by this Resolution.

"It can be affirmed that Vietnam's competitiveness in attracting FDI capital will be affected in the short term when the preferential tax framework changes. Countries including Vietnam will have to end the race to the bottom in taxes and tax incentives with countries in the region. Motivations to attract quality FDI capital flows, especially in the fields of high technology, value-added services, renewable energy towards a green economy, the digital economy will face many challenges. Vietnam needs to research this issue soon to design more appropriate FDI incentive policies in the new context", Deputy Director of the Institute of Economic and Policy Research (VEPR) emphasized.

However, according to Dr. Nguyen Quoc Viet, this is also an opportunity for Vietnam to screen and attract high-quality capital, especially when a number of American corporations have recently considered investing in new projects in Vietnam. In particular, this is a "golden" time for Vietnam to enhance its position, change the connection between Vietnamese enterprises and FDI enterprises, and participate more deeply in the global value chain.

According to experts, the official application of the global minimum tax from January 1, 2024, will end the race to the bottom in terms of tax incentives among countries in the region. Changing attractive measures to attract investment capital in general and FDI in particular by improving national competitiveness, enhancing the capacity of businesses, and promoting businesses to participate more deeply in the global value chain is an urgent problem.

Analyzing more clearly the links between FDI enterprises and Vietnamese enterprises in recent times, Dr. Tran Thi Mai Thanh (Faculty of Economics and International Business, University of Economics, Hanoi National University) said that, up to now, the ability of FDI enterprises to participate in the input supply chain is limit ed. Vietnamese domestic enterprises are still limit ed, especially supplying to large corporations. While 90% of FDI enterprises in China, Malaysia and Thailand use domestic inputs, in Vietnam it only accounts for about 60%. After many years of promoting FDI attraction, Vietnamese enterprises mainly participate in the links with the lowest added value in the global value chain, most of which are labor intensive and have low technical requirements. Many domestic enterprises still do not meet the requirements to become suppliers to FDI enterprises, so it is difficult to participate in linkages.

Besides, Vietnamese enterprises have not been able to participate in the ecosystem and value chain of chain-leading enterprises and FDI enterprises. FDI enterprises operating in high-tech sectors often tend to import input goods from their country of origin rather than FDI enterprises operating in low-tech sectors and are less likely to use domestic private suppliers. For example, Japanese enterprises - one of the largest FDI investors in Vietnam, purchase about 32.6% of input services and products from local suppliers. This number is much lower than Japanese FDI enterprises in neighboring countries such as China (67.8%), Thailand (57.1%), and Indonesia (40.5%).

Opportunity to attract FDI capital non-tax

Sharing the same opinion, Mr. Simon Kreye, Deputy Ambassador of the Federal Republic of Germany in Vietnam, added that Germany is one of Vietnam's leading trading partners among EU countries, with a total value of Investment is about 2.4 billion Euro with about 450 ongoing projects, creating about 50,000 jobs. The trend of shifting supply chains into Vietnam has occurred since Vietnam signed bilateral, free trade agreements with EU countries and has intensified since these countries applied the China 1 strategy. German businesses have been benefiting a lot from Vietnam's FDI attraction policy, but the connectivity of the two sides' businesses has not been shown much. Vietnamese enterprises have only participated in the low levels of the global value chain and have not yet been fully connected to FDI enterprises.

“Improving the connection between Vietnamese enterprises and FDI enterprises is an important goal for Vietnamese enterprises to enhance production capacity as well as deeply integrate the global supply chain, attracting many high-quality capital sources when Vietnam applies the global minimum tax," Mr. Simon Kreye emphasized.

Sharing policy suggestions for promoting links between Vietnamese enterprises and FDI enterprises, Dr. Nguyen Quoc Viet said that it is necessary to pay attention to the problem of improving competitiveness, autonomy and labor productivity for domestic enterprises; At the same time, emphasize the establishment of regional links. According to Dr. Nguyen Quoc Viet, creating connections between regions is becoming a crucial measure to promote the development of industrial clusters, opening up new opportunities for Vietnam's economic development. Next is to promote the transfer of advanced technology. In particular, the Government needs to complete legal documents and policies related to investment, transfer of advanced, environmentally friendly technology and sustainable development. On the Vietnamese enterprises side, it is necessary to be more proactive in seeking technology transfer opportunities from FDI enterprises, including agreements to purchase copyrights, inventions or franchise rights... At the same time, it is also necessary to focus on perfecting the policies to develop supporting industries according to links linked to the global value chain...

According to Associate Professor, Dr. Nguyen Thuong Lang (National Economics University), the application of global minimum tax is an opportunity for Vietnam to attract non-tax FDI capital. To fully promote non-tax tools and measures, Vietnam needs to deploy a new strategy to attract FDI and reinvest with diverse, substantive, effective and long-term non-tax measures. This aspect needs to be associated with the process of transforming the economic growth model towards depth, stability, and sustainability. Along with that, it is necessary to perfect the legal system on FDI to be clear, transparent, and consistent among localities in accordance with world trends, international commitments and practices associated with the global minimum tax commitment of 15%. Assess the specific impact of this commitment on FDI flows in each industry, partner and locality to adapt accordingly.