Legal News
Policy changes pose obstacles for foreign investors

08 - 12 - 2017
VNS

Although foreign direct investment (FDI) has played an important role in boosting Viet Nam’s economic growth, recent changes in policies and regulations, which are not consistent with international best practices, have exposed many foreign investors to considerable risks and obstacles in executing their investments.

The statement was made by Adam Sitkoff, executive director of the American Chamber of Commerce (AmCham) during a workshop on “Challenges of policy and regulatory changes for foreign investors in Viet Nam”, co-organised by AmCham, the Viet Nam Chamber of Commerce and Industry (VCCI) and the Ministry of Planning and Investment’s Foreign Investment Agency in Ha Noi on Thursday.

Nguyen Mai, chairman of Viet Nam Foreign Investment Enterprises (VAFIE) said the economic statistics in Viet Nam clearly show the importance of foreign investment in the economy, adding that so far Viet Nam has attracted foreign investors from more than 100 countries and territories with investment capital pouring into the country totalling US$165 billion.

FDI enterprises contributed some 19 per cent of domestic revenue, 19 per cent of GDP and more than 70 per cent of export turnover in 2017, Mai said.

However, Mai shared Sitkoff’s view that there was a lack of consistency and transparency in the adjustment process of some State policies, causing confusion for investors and making it difficult for them to determine directions for investment and business operation.

Since 2006, the Government has empowered the city-level or province-level people’s committees to decide the licenses for FDI projects. However, some of them have abused this power and made decisions beyond their authority and not in line with laws, leading to unhealthy competition among localities, seriously damaging the interests of investors when investing in Viet Nam, Mai said.

According to Sitkoff, American companies operate across the spectrum of economic activity here, including in efforts to help Viet Nam become more productive, efficient, safer and cleaner.

“However, we often see investments that don’t materialise due to challenges dealing with corruption and an over-complicated, restricted, and unclear licensing and regulatory environment,” he said.

“Our members need greater reform efforts that help create a fairer and more competitive environment where decisions are made faster, procedures are less complicated, rules are fairly enforced, and companies compete on their merits - including for access to land and opportunities,” he added.

Notably, the workshop discussed typical regulatory changes that either have come into effect or are being drafted during the 2016-2019 period, such as the draft law amending and supplementing five tax laws including the Law on Special Consumption Tax (“SCT”), Decree 54/2017/ND-CP guiding the implementation of the Law on Pharmacy and amendments to the Law on Tax Management.

Herbert Cochran, director of the Viet Nam Trade Facilitation Alliance, said at the workshop that frequent regulatory changes make Viet Nam a more risky destination for foreign investors.

An investor, when making decisions on investment or expansion in a country, would develop a five to ten year business plan to estimate the returns on investment. Changes in taxation will adversely impact the entire business plan, potentially causing higher costs, lower revenue and therefore a lower rate of return or longer time to get a return on their investments, he said.

Citing the draft law amending and supplementing five tax laws including the addition of sweetened beverages to the group of objects subjected to SCT, Cochran shared international practices showing that such an imposition would harm the industry, indicating that small and medium enterprises (SMEs) will be hurt the most and may even be eliminated.

If tax is applied, Viet Nam will be among 2.2 per cent of the population in the Asia-Pacific region that have to pay for this tax, said Cochran.

He highly recommended that the Government take into serious consideration the potential socio-economic impacts of the changes in tax policy, which have a major effect on society and industries which have contributed to the State budget, whereas the effectiveness hasn’t been proven.

At the workshop, Le Net, AmCham Healthcare Committee representative spoke of the situation and challenges faced by investors in the pharmaceutical industry.

Although the Law on Pharmacy has some advanced provisions and offers an opportunity to promote pharmaceutical business development, some documents such as Decree 54/2017/ND-CP guiding the implementation of the Law on Pharmacy includes provisions that are inconsistent with the law and WTO commitments, he said.

According to this decree, foreign importers must have a proper location in Viet Nam, and run their own drug storage, storage equipment and transportation, creating unnecessary costs, which in turn will escalate drug prices due to higher operation costs of foreign importers.

Net said such enforcement, which leads to the shutting down of current foreign investors who acquired their licenses or forces them to change their business model, would have a negative impact on the reputation and investment environment in Viet Nam.

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