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Losses still high in FDI business

Update: January, 05/2012 - 09:27

HCM CITY — Deputy Minister of Finance Do Hoang Anh Tuan asked HCM City to reduce the number of foreign direct investment (FDI) enterprises declaring losses from 48 to 40 per cent this year.

Tuan made the statement at a conference reviewing last year's taxation held in HCM City on Tuesday.

Nguyen Trong Hanh, deputy director of the municipal tax department said the number of FDI businesses posting annual losses has decreased since the 2007 tax period, but still remains high.

In 2007, 1,300 FDI-backed businesses posted losses, accounting for 60 per cent of the all enterprises declaring tax.

In 2009, the number was reduced to 51 per cent while in 2010 the figure was further lowered to 48 per cent, totalling 1,200 enterprises.

Hanh said businesses reported profits accounted for only 1 per cent of all FDI businesses.

He added that some businesses with a large market share such as Metro Cash & Carry had also reported losses, adding that the losses had been often seen in garment and textile, and shoe-making FDI businesses.

He said several businesses had capitalised on accounting loop-hole to declare losses. Based on company reports, the ministry found the companies' selling prices were lower than costs, resulting in the losses.

"Some enterprises signed big contracts beyond their production capacity in terms of machines, equipment and labour force," he said, adding that this resulted in hiring other companies to produce products with higher prices in order to meet contract deadlines.

The municipal tax department said price transfers among businesses had contributed to the losses.

Hanh said the department would investigate business operations at loss-making enterprises and suggested revising policies relating to limit price transfer and loss declaration in the sector.

The department also proposed restricting software processing businesses from declaring losses while asking those still making losses after three years of operation to pay tax regardless. — VNS

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