Finance ministry required to assess Global Minimum Tax impacts

Vietnam’s Deputy Prime Minister Le Minh Khai has requested the Ministry of Finance to thoroughly assess the adverse impacts of the Global Minimum Tax (GMT) in order to provide appropriate solutions.

The request is part of his conclusion at a recent government meeting on the GMT, in which he praised the ministry’s report on the global tax policy’s impacts on Vietnam, a new global production base for multinational companies (MNCs).

However, the report only focuses on adjusting Vietnam’s tax policy without fully analyzing and evaluating the impacts of the GMT, especially its adverse influences on incentives the country has pledged to investors, Khai noted.

The GMT under OECD Pillar Two is a once-in-a-lifetime global tax reform that will apply to multinational companies with revenue above 750 million euros. It is aimed at ensuring MNCs pay their fair share of taxes at 15%, regardless of where they operate. A number of Organization for Economic Cooperation and Development (OECD) countries would apply the new tax from the beginning of 2024.

Therefore, Vietnam, as an investment destination for MNCs, needs to make a thorough assessment of all impacts, Deputy PM Khai concluded.

The Ministry of Finance was assigned to collect the opinions of delegates at the government meeting to improve its report. The Deputy PM wanted the report to cover all arising issues and propose appropriate solutions. It needs to highlight such key issues as the process and significance of the GMT, specific tasks for Vietnam, GMT impacts on the national budget, foreign investors and FDI in the country.

Analyses by the Foreign Investment Agency under the Ministry of Planning and Investment show Vietnam is using tax incentives as a financial leverage tool to influence investment trends. Vietnam's corporate income tax (CIT) incentives are considered attractive compared to other regional countries. Its common CIT rate is 20%, higher than the GMT rate; while preferential tax rates are 10%, 15%, and 17% depending on sector, scale and area of investment.

Meanwhile, Vietnam’s special preferential tax rates are 5%, 7%, and 9%. Along with tax incentives, current laws offer tax exemption and reduction of 50% during the period of exemption or reduction offered.

However, when the OECD Pillar Two is applied, Vietnam’s CIT incentives will be affected, likewise toward its investment environment.

GMT workshops by The Investor highly appreciated

The Investor (www.theinvestor.vn) on February 24 held a conference discussing solutions to maintain and improve Vietnam’s competitiveness in luring FDI while implementing the GMT. The seminar was joined by representatives of ministries and industries, business associations, major domestic and foreign companies, and economic experts.

Dr. Nguyen Anh Tuan, editor-in-chief of The Investor, concluded at the event that discussions and opinions were consistent while Vietnam’s GMT application is fast approaching. "Therefore the government of Vietnam needs to take rapid action in order not to lose the right to collect additional taxes while maintaining the country’s investment competitiveness."

Most opinions at the workshop held that Vietnam should issue a mechanism on the minimum domestic tax as soon as possible. Participants were also of the view that Vietnamese tax incentives should become incentives to support costs, including monetary support for R&D projects at a certain ratio, and support in infrastructure and human resources development, among other types of support.

In June 2022, The Investor held another workshop focusing on the GMT and issues faced by Vietnam. Experts and business leaders discussed the possible impacts of Pillar Two on Vietnam and proposed some solutions to take advantage of new opportunities to increase state budget revenue, while maintaining the competitiveness of Vietnam as a destination for foreign investors.

The two conferences were praised by Vietnamese regulators and experts alike.