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  Policy & Strategy

Tax breaks fail to spur economy

While the Vietnamese Government sacrifices several trillion dong of tax revenue annually to business tax preferences, the results of a recent survey show that tax preferences may not be the most effective means of encouraging business growth.

According to a survey conducted among 140 firms by the Economic Faculty of the HCM City National University and the US project Viet Nam Competitiveness Initiatives, 84 per cent of surveyed firms said they would continue to invest even without corporate tax preferences. Only six per cent of businesses said they would not or probably would not withdraw their investments if the tax preferences were rescinded.

Professor Nguyen Thi Canh from the Economic Faculty said the survey results showed that tax preferences rank only seventh among the key factors that affect investment decisions.

Infrastructure and human resources are the most important factors, followed by the ability to access materials, market potential, legal framework and the behaviour of State officials.

One reason many firms said they are not interested in tax preferences is because of the expensive cost they would need to incur to pay for a certificate to get the preferences. In HCM City, 30 per cent of the surveyed firms said they had to spend between VND5 million (US$320) and VND15 million ($960) to get this certificate. Ten per cent say that they had to pay between VND15 million and 30 million ($1,900) for a package service to get the certificate.

Pham Chi Lan, a member of the Prime Minister’s Research Committee, said previous studies conducted by the Viet Nam Chamber of Commerce reflected similar results. The studies showed that firms want the government to remove obstacles to a healthy business environment, instead of only offering tax preferences.

"Many firms said they do not need preferences, they just want the Government to stop harassing them," Lan said.

Lan also said tax preferences are essential, but only in special cases, such as the software industry, where Vietnamese businesses face fierce competition.The survey included 74 firms in HCM City, 40 in Binh Duong Province and 26 in Tien Giang Province.

VNS - (15/11/2004)

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