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Cost of tax incentives and tax avoidance by FDIs to Vietnam

Cost of tax incentives and tax avoidance by FDIs to Vietnam


Vietnam has been quite successful in attracting FDI inflows since implementation of Doi Moi in 1986. By 2013, FDI inflows had reached US$19.2 billion a year, an astounding increase of 65.5% over the previous year’s FDI1. 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 inflows is expected to continue through 2015, according to the National Financial Supervisory Committee (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 practised 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 cost3.

This policy brief highlights the cost of tax incentives 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 collaboration with Vietnam Tax Consultants Association titled “Vietnam’s tax policies with objectives of equality, efficiency, economic growth promotion, poverty reduction and elimination”.