The Ministry of Finance assessed that growth of capital sources of FDI enterprises mainly comes from outside sources; profitability indicators in some areas are still negative and have not been improved; contributing into the state budget is not commensurate with the total investment; the number of FDI enterprises reporting losses, accumulated losses, and loss of equity tended to increase in both quantity and value of losses. The above conclusion is in the Report on financial situation and business results of FDI enterprises in 2021 sent to the Prime Minister on December 28, 2022,
Notably, the number of FDI enterprises reporting losses in 2021 is 14,293 enterprises (accounting for 55% of the total number of enterprises), an increase of 11% compared to 2020 with a loss of 168,334 billion VND. The number of enterprises with accumulated losses is 16,258 enterprises (accounting for 62% of the total number of enterprises), an increase of 8% compared to 2020 with a loss value of VND 706,146 billion. The number of enterprises losing equity is 4,402 enterprises (accounting for 17% of the total number of enterprises), an increase of 15% compared to 2020 with a value of VND 162,233 billion.
“The rate of enterprises with losses and accumulated losses is larger than that of enterprises reporting profits and has a relatively high growth rate compared to 2020 showing that the use of assets and investment capital of a large part of FDI enterprises has not been effective at the highest level. Therefore, it is necessary to selectively attract and evaluate investment efficiency to improve the quality of foreign investment in Vietnam”, the Ministry of Finance commented.
In addition, in recent years, the FDI sector has marked its export achievements. However, although accounting for 65-70% of the country’s export turnover each year, this sector also imports a lot. Raw materials such as plastic raw materials, chemicals, chemical products, textile raw materials, footwear, etc. have import value much higher than export value.
One of the reasons pointed out by the Ministry of Finance is that FDI enterprises mainly use input materials provided by foreign partners, limiting the use of materials produced by domestic enterprises. This shows that the extent of spillover of FDI enterprises to domestic economic sectors is still limited. Therefore, the products exported by FDI sector are mainly processed and assembled goods, low added value, labor intensive, low technology, low localization rate.
FDI is also the sector that receives many tax and land incentives. The General Department of Taxation said that although the common corporate income tax (CIT) rate in Vietnam is 20%, with incentives for exemption and reduction, the real CIT rate on FDI enterprises is usually 5-10%. Some corporations have large projects can enjoy CIT rate of only 3-6%. Therefore, many FDI enterprises have high profits but pay very little tax.
Four subsidiaries of a large FDI enterprise in Vietnam have a pre-tax accounting profit according to the 2018 financial statements of VND 112,478 billion, but the amount of corporate income tax paid is only VND 3,241 billion (equivalent to a CIT rate of only 2.88%). In 2019, the pre-tax accounting profit was VND 105,037 billion, but the tax paid was VND 4,944 billion (CIT rate of 4.71%). In 2020, the pre-tax accounting profit is VND 95,333 billion, CIT payment is VND 4,426 billion (CIT rate of 4.64%). Another foreign FDI enterprise, the pre-tax accounting profit in 2020 is VND 5,727 billion, but the payable corporate income tax amount is just over VND 158 billion (the CIT rate of 2.77%).
The amount of state budget payment of the FDI sector is not commensurate with the potential, incentives are also the warning raised by the ministries and economists for a long time. Looking at the data in the Enterprise White Paper 2022 compiled by the General Statistics Office, the contribution figure into the state budget of FDI enterprises is a big question mark. In the period 2016-2020, FDI enterprises generate up to VND 392.5 trillion in profit before tax each year, accounting for 45.3% of the total profit before tax of the whole enterprise nationwide. While state-owned enterprises have a pre-tax profit of 198 trillion VND, accounting for 22.9% of the total profit before tax. Non-state enterprises generated 275.1 trillion VND, accounting for 31.8%.
Analyzing the business results of the FDI sector in 2021, the Ministry of Finance also made notable assessments. According to the Ministry of Finance, the revenue of the FDI sector in 2021 is VND 8,567,847 billion, an increase of 1,384,851 billion VND (up 19%) compared to 2020; profit after tax was 366,222 billion VND, up 83,585 billion VND (up 29.6%). Accordingly, the amount paid to the state budget is VND 179,630 billion, an increase of VND 15,292 billion (up 9.3%) compared to 2020. But the Ministry of Finance assesses: The amount of payment to the state budget has increased slower than the increase rates in capital, revenue, and profit after tax shows that the contribution to the state budget is not really commensurate with the investment and business results of FDI enterprises.
That is why many opinions have long raised the question of transfer pricing and tax avoidance of FDI enterprises in Vietnam. In fact, many well-known FDI enterprises are constantly expanding their production and business, but still continuously report losses.
Vietnam’s private sector pays the largest budget, creates the most jobs
Compared with foreign-invested enterprises, Vietnam’s private sector is still quite modest in size. However, the budget revenue data shows that this sector recorded the largest budget contribution, far exceeding the rest, including the FDI sector. The state budget revenue estimate in 2023 continues to set the highest target of revenue from the non-state economic sector with VND 312,919 billion; Revenue from FDI enterprises with 229,714 billion VND; Revenue from state-owned enterprises with 168,582 billion VND.
The growth rate of the private sector’s contribution to the budget is also much higher than that of the other two business sectors. This demonstrates the persistence and active contribution of this economic sector to the budget. The Enterprise White Paper 2022 compiled by the General Statistics Office also shows that: In the period 2016-2020, on average, non-state enterprises attract the most workers each year, ranked second by FDI enterprises and last by state-owned industry.
In the period 2016-2020, non-state-owned enterprises that generate revenue the most. On average, non-state enterprises generate 13.2 million billion VND per year, accounting for 57.0% of the total revenue of the enterprise nationwide, up 101.3% compared to the average period of 2011-2015; FDI enterprises generated 46 billion VND, accounting for 28.8%, up 118.6%; State-owned enterprises generated VND 3.3 million billion, accounting for 14.2%, up 15.1% (of which enterprises with 100% state capital generated VND 2.1 million billion, accounting for 9.0%, up 16.4%).
In the list of 1,000 largest corporate income tax payers in 2021 announced by the General Department of Taxation, many notable numbers were also recorded. TOP 10 largest CIT paying enterprises have 8 “domestic” enterprises and 2 FDI enterprises. The top 50 largest corporate income tax payers recorded the presence of more than 30 “domestic” enterprises.
The above examples show that, despite many difficulties and disadvantages, the private sector is still a solid pillar of Vietnam’s economy, actively contributing to the state budget, creating jobs. Therefore, the promulgated policies should aim to create an environment for domestic private enterprises to develop healthily, fairly, and compete equally with FDI enterprises. Only in this way can Vietnam build an independent and self-reliant economy, capable of extensive international integration.
