Economist Pham Chi Lan tells the Tien Phong (Vanguard) newspaper that preferential treatment for foreign firms at the expense of Vietnamese enterprises will harm the nation in the long run
Can you give some examples of different treatment given to Vietnamese and foreign invested enterprises?
There are three main preferential treatments given to foreign enterprises.
The first is land. Due to the rapid development of the real estate market, land prices in Viet Nam has become more expensive in the past few years and access to land for Vietnamese enterprises has become more difficult.
But, for most of foreign direct enterprises, they can expect red carpet treatment.
Land - a precious commodity for many Vietnamese – is more available to them. Sometimes, land allocated to them is larger than the amount they need. Sometimes, it is even cheaper than the market price. That's not all, their land tenures are often much longer than those rented to Vietnamese enterprises.
Secondly, there are tax exemptions for the first 10 years of operation, followed by 50 per cent tax reductions for the 10 years after. No Vietnamese enterprises are given such treatment.
The third relates to credit access. For many Vietnamese enterprises, getting access to bank loans is a nightmare. But their foreign peers are welcomed. As a result, in the last few years, some foreign enterprise owners have fled Viet Nam and left behind huge debts with Vietnamese banks.
In addition, sometimes Vietnamese enterprises are charged higher interest rates set by the State Bank of Viet Nam. To my knowledge, no interest surcharge is applied to foreign enterprises.
Business conditions, or market access, given to foreign enterprises are also much better than their Vietnamese peers.
In your opinion, what are the consequences of such special treatment given to FDI enterprises compared with their Vietnamese counterparts?
There are two consequences.
Normally, in a developing economy, domestic forces are the driving force in development, not external forces.
However, in our case, we have leaned heavily on foreign investment and as a result, our GDP growth rate is high with a high export turnover.
However, when our country is no longer lucrative to foreign investors - due to various reasons, including the loss in comparative advantages or no more red carpet treatment is reserved for them - they will leave us for other countries offering more generous conditions.
One example is Thailand in 1997, when foreign investors withdrew from the country. This posed a challenge to the country's economy as well as to Vietnamese enterprises. That's why, in my opinion, it is high time for Viet Nam to adjust its policies for FDI.
Additionally, Viet Nam is the only country in the world which has adopted such a disparate approach to courting foreign and Vietnamese investors. During negotiations on free trade agreements, all countries demand fair treatment for foreign and domestic enterprises.
However, in our country, things go the other way around. In my opinion, the government needs to adjust its FDI policies, particularly the extremely preferential treatment given to foreign investors and create a level playing field for both investors.
One point I want to raise here is the act of transfer pricing used by quite a few foreign firms in Viet Nam in recent years. Such an act must be condemned. There are some wholly foreign owned companies who have operated in Viet Nam for dozens of years, yet they don't pay a single cent in tax despite constantly increasing their investment capital.
This cannot be accepted!
What you have mentioned is very serious. Is it due to our weak management or the red carpet treatment given to foreign investors?
Red carpet treatment is what we have promised and we have to keep our promise. But, they have to abide by our laws. Some of them have abused the weakness in our tax system to avoid meeting their tax obligations. I think the first agency that has to take the responsibility is the government and then the ministries. — VNS