[HANOI] Vietnam plans to exempt coal power plant operators from a global tax and wants to ease the granting of waivers to other big firms, effectively forfeiting hundreds of millions of US dollars to reassure foreign investors, a document seen by Reuters shows.
The South-east Asian nation acts as an industrial hub for multinationals, but US 20 per cent duties on its exports, higher taxes on big companies and power supply problems have recently reduced its appeal.
The proposal from the finance ministry, dated Sep 7 and still subject to changes, would “ensure a stable investment environment”, it says, by not applying to some multinationals the worldwide minimum 15 per cent tax. Under the system introduced by the Organisation for Economic Co-operation and Development (OECD) to tackle tax avoidance, wherever local taxes are lower, a top-up levy should be applied to meet that minimum.
Vietnam would grant an immediate exemption from that levy to seven power plants controlled by foreign investors, including Japan’s Mitsubishi, Marubeni and Sumitomo, South Korea’s Kepco, US energy firm AES, and state-owned China Southern Power Grid, the document shows.
The companies may still be forced to pay the top-up tax in other jurisdictions.
In the document, the ministry said that its proposal complied with OECD guidelines.
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Vietnam’s finance ministry, the OECD and the companies mentioned in this story, did not respond to requests for comment.
The exemption would lower by about US$426 million Vietnam’s tax revenues from six plants over a roughly two-decade period, the document says, with possible additional losses from the seventh plant, which have not been estimated yet.
However, “applying the tax on the projects would expose the Vietnamese government to the risk of having to pay compensation that exceeds the tax revenues”, the document said.
The proposed legislative changes, which the parliament could approve next month, would primarily concern Kepco and Marubeni, the largest shareholders of the Nghi Son 2 power plant in Northern Vietnam, which alone would pay in Vietnam nearly US$190 million in additional taxes by 2047, if not exempted from the global levy there.
Proposal paves way for more tax waivers
Under the proposal, the government will also be given ample leeway to decide on more exemptions, prioritising the country’s “investment reputation” over tax collection.
If foreign investors “request to have their investment incentives guaranteed, the government shall consider and address the request in accordance with investment regulations”, the proposal said.
Vietnam wooed dozens of multinationals with generous tax incentives, including South Korea’s Samsung Electronics and US chipmaker Intel. Many of them complained that it was hard to obtain compensations pledged by the government after the approval of the new tax on multinationals.
Vietnam was among the first countries to apply last year the global 15 per cent top-up tax on multinationals, which it estimated would raise US$600 million a year, and set the deadline for tax declarations at the end of this year.
The country’s corporate tax rate is 20 per cent, but Vietnam has for years offered large foreign investors effective rates as low as 5 per cent and extended tax vacations. REUTERS
