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Policy Brief: Cost of tax incentives and tax avoidance by FDIs to Vietnam

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Vietnam has been quite successful in attracting FDI in flows since implementation 
of Doi Moi in 1986. By 2013, FDI in flows had reached US$19.2 billion a year, an
astounding increase of 65.5% over the previous year’s FDI 1. By the 4th quarter of
2013, the Vietnamese economy had surpassed the government’s target of US$
13‐14 billion in annual FDI contributions.


The current trend of above‐average FDI in flows is expected to continue through
2015, according to the National Financial Supervisory Committe (NFSC), due to 
improving global economy and increased FTAs with trading partners.

In general, FDI has boosted industrial and exports growth, created more jobs, and
it has also significantly impacted on Government revenue. However, as a result of 
decreasing (low) Corporate Income Tax (CIT), tax exemptions and tax avoidance
practied by some companies, government losses US$20 million out of its potential 
revenue annually. The Government’s law and policy enforcement and monitoring 
efforts further aid to this cost.


This policy brief highlights the cost of tax incenties and tax avoidance to Vietnam
and offers policy options to ensure FDI without necessarily reducing CIT. The policy 
brief draws from a national tax research carried out in 2014 by Actionaid Vietnam 
in collaboratin with Vietnam Tax Consultants Associatin titled “Vietnam’s tax 
policies with objecties of equality, efficiency, economic growth promotion, poverty 
reduction and elimination”